(The following statement was released by the rating agency)
LONDON, August 01 (Fitch) Fitch Ratings has affirmed Armenia's
and local currency Issuer Default Ratings (IDRs) at 'BB-'. The
Stable. The issue ratings on Armenia's senior unsecured foreign
currency bonds have also been affirmed at 'BB-'. The Country
Ceiling has been
affirmed at 'BB' and the Short-term foreign currency IDR at 'B'.
KEY RATING DRIVERS
The affirmation of Armenia's sovereign ratings reflects the
The general government deficit fell to 1.7% of GDP in 2013,
projections of 2.8%. This was mainly due to under-execution and
delays in the
implementation of public investment. The government expects the
deficit to rise
to 2.4% of GDP in 2014, although further under-execution is
increase in public sector wages, effective from 1 July 2014,
public spending by about 0.4% of GDP in 2014 and 2015, but has
budgeted for and will be compensated by an increase in tax
The general government debt level is expected to remain stable
at around 43%-44%
of GDP in 2014-15, and could fall in 2016 if GDP growth picks
up. However, with
about 85% of public debt foreign-currency denominated, Armenia's
debt profile is
vulnerable to exchange rate shocks. The administration's
prioritise domestic financing will lead to a gradual pick-up in
issuance, where appetite for state bonds will be boosted by
GDP growth slowed in 1H14, partly because of the slowdown of the
economy, but is expected to pick-up slightly in the second half
to average about
4.5% for the year, mainly as a result of base effects and a
investment. Although the increase in public sector wages may
have a positive
impact on private consumption, the recurring under-spending of
will continue to act as a drag on domestic demand. Inflation is
remain close to the Central Bank's target of 4%.
Because of its high dependence on Russia in terms of gas
and military support, Armenia remains particularly vulnerable to
and policy changes in Russia. Despite the slowdown in Russia,
held up. Net remittances account for about 15% of GDP, of which
more than 80%
come from Russia. Similarly, nearly 20% of Armenian exports are
Russia. The Armenian government has announced its intention to
negotiations for its accession to the Eurasian Economic Union,
The current account deficit (CAD) shrank slightly in 2013, but
is expected to
remain high at nearly 10% of GDP in 2014, partly because of the
of the Russian economy. The Central Bank of Armenia is allowing
rate flexibility, but international reserves fell in 1H14,
following pressure on
the exchange rate and the still large CAD. Reserves are likely
slightly over the coming years.
Armenia has benefited from a series of IMF programmes and has
agreed a further
USD128m extended fund facility for 2014-17, which will act as a
Armenia has so far fulfilled most of the performance criteria.
continue to enjoy support from major international financial
have been instrumental in most large infrastructure projects.
Armenia's geopolitical environment is a constraint on the
rating. The latent
conflict with Azerbaijan over the disputed Nagorno-Karabakh
region entails the
risk of escalating into a full-scale conflict.
The Stable Outlook reflects Fitch's assessment that upside and
downside risks to
the ratings are currently well balanced. Consequently, Fitch's
analysis does not currently anticipate developments with a high
leading to a rating change. The main factors that, individually
could lead to positive rating action are:
-Further improvement in the CAD and a stronger reserve position.
-A substantial decline in the debt-to-GDP ratio would improve
especially given the strategy of relying more on relatively
issuance and the vulnerability of debt dynamics to external
shocks, via the
-An easing of the tensions with Azerbaijan or an improvement in
other neighbouring countries.
The main factors that, individually or collectively, could lead
rating action are:
- A bigger than expected impact on GDP growth from economic and
developments in Russia.
- A sharp rise in net external debt and a weakening of reserves.
- Material slippage in the performance of public finances
leading to a
significant rise in the debt/GDP ratio.
The ratings and Outlooks are sensitive to a number of
Fitch assumes continuation of good relations with Russia, given
of this relationship both economically and diplomatically.
Fitch assumes that a sharp downswing in metals prices is
exports, especially copper, account for about half of Armenia's
Fitch assumes that Armenia continues to enjoy broad social and
stability, and that there is no significant worsening in
Azerbaijan surrounding Nagorno-Karabakh.
Fitch assumes that the global economy performs broadly in line
Global Economic Outlook and that the US Federal Reserve exit
stimulus is orderly, so that Armenia retains external market
higher international financial volatility.
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Applicable criteria, 'Sovereign Rating Criteria', dated 13
August 2012, and
'Country Ceilings' dated 9 August 2013, are available at
Applicable Criteria and Related Research:
Sovereign Rating Criteria
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