Moodys retained Armenia`s rating at "B1" with "Stable" forecast

ArmInfo. The agency Moody's Investors Service confirmed the rating of Armenia (IDR) at the level of "B1" with the forecast "Stable". This is noted in the August report on the official website of the agency.

Moody's specialists stipulate the preservation of Armenia's rating by reliable economic and financial management through effective fiscal and monetary policy, while paying attention to the high debt burden.

In the Agency they consider that yhe economy is recovering solidly in 2017, on the back of an accommodative monetary policy and strengthening external demand. And, fiscal consolidation is in train to arrest a build-up in debt, following a period of expansionary fiscal policy.

Moreover, credit-positive commitments to pension and tax reform, trade liberalisation and increasing infrastructure investment aim to boost the economy's productive capacity and address the country's low savings levels. However, external risks remain prominent, given Armenia's high economic exposure to Russia (Ba1 stable), generally low economic resilience, and reliance on external funding. In addition, geopolitical tensions with neighbouring Azerbaijan (Ba1 rating under review) remain prominent. Moreover, Armenia's fiscal strength has weakened when compared with a few years ago.

The stable outlook on Armenia's B1 rating reflects a balance of risks. Upward pressure on credit quality could stem from a sustained strengthening in foreign direct investment inflows, export earnings or remittance inflows, which would lead to an increase in economic strength and lower external vulnerability risk. Moreover, a sustained decline in the government's debt burden would be credit positive. And, a material decrease in geopolitical risks would improve creditworthiness, as would significant strengthening in Armenia's institutional framework.

On the other hand, downward pressure on the rating could stem from a worse-than-expected economic situation in Russia, which would have lasting adverse effects on trade, remittances, investment inflows and Armenia's foreign exchange reserves. If measurements of debt deteriorate significantly, and if there are diminished prospects for stabilisation in debt over the medium term, such a situation would be credit negative. A rise in geopolitical risks related to the unresolved conflict with Azerbaijan over the disputed Nagorno-Karabakh territory could also lead to credit deterioration.

Meanwhile, Moody's Investors Service (Moody's) has downgraded the government of Azerbaijan's issuer and senior unsecured debt ratings to Ba2 from Ba1. The rating downgrade reflects the significant and long-lasting weakening of Azerbaijan's fiscal and economic strength, which is driven by the ongoing impact of lower oil prices, the country's declining oil production potential and its very weak banking system. Analysts of Moody`s expect an increase in Azerbaijan's gross national debt from 51% last year to about 52% of GDP in 2017 and over 55% of GDP by the end of 2018. According to their forecasts, the real GDP of Azerbaijan will decrease by about 1.5% in 2017 after falling by almost 4% in 2016.