Reuters: Economic Reforms Bring Armenia Into the Perspective of  Income-Craving Investors

ArmInfo.A fourfold excess of  demand over the offer for the purchase of Armenian sovereign bonds in  international markets testifies to the newly acquired attractiveness  of the tiny former Soviet republic among investors eager for negative  interest rates in the world. This is stated in a Reuters analytical  article titled Economic reforms put Armenia on radar of yieldhungry  investors. .

Earlier, on September 20, ArmInfo reported that the volume of  applications for the purchase of Armenian sovereign bonds in  international markets amounted to $ 2.5 billion. The organizer of the  issue opened the application book on September 19, when it announced  the start of placement of 10-year Eurobonds in the amount of $ 500  million with an initial yield of 4.625% per annum Significant  prevalence of demand over supply led to a decrease in the yield rate  to 4.2% per annum, and the coupon rate was 3.95%.  

Speaking about the release of the third tranche of Armenian Eurobonds, the authors of   the material note that due to this, Yerevan bought out part of the  first tranche of Eurobonds issued in 2013 with a repayment date of  September 30, 2020. "Bonds of Armenia with maturity in 2025 yield  3.9%, and this is slightly higher than bonds of Azerbaijan and  Uzbekistan with maturity in 2024 with yield of 3.3% and 3.5%,  respectively.  Yield of Armenian bonds (JPMEGDARMR) in benchmarking  of new JPMorgan's investment block bond portfolio has grown by almost  14% since the beginning of the year, while Georgian bond yields have  increased by 9.4% (JPMEGDGEOR), the article says.

According to Reuters, after a reform-oriented government was created  last year as a result of peaceful protests, the Armenian economy  began to grow faster than its neighboring oil-rich Azerbaijan.  According to the authors of the article, the new government supported  investors who were ready to "lend to an impoverished, landlocked  country with a population of three million."

"The government of Prime Minister Nikolai Pashinyan has adopted a  reform program aimed at strengthening the institutions of Armenia and  the rule of law, improving the business environment and curbing  corruption," the article says.Thus, the new Cabinet plans to increase  the share of investments in gross domestic product (GDP) from the  current 20% to 23-25% over the next four years, and the share of  exports from the current 37% to 43-45% of GDP. "After the 2018  revolution, hopes were formed that the new government would move  decisively through structural reforms and, in particular, to fight  corruption," said Lisa Ermolenko, European economist at Barclays, to  Reuters. According to the economist, so far the government is moving  in the right direction: "the government program adopted at the  beginning of this year is an example of this."

In turn, as Igor Rapokhin, a fixed income strategist at VTB Capital,  said in an interview with Reuters, this year Armenian bonds exceeded  many of their regional counterparts, which is a sign that investors  who bought them clearly trust the reforms being carried out.

According to Reuters, since many large emerging markets, such as  Turkey or South Africa, are facing some turmoil, smaller reform  countries are attracting the attention of fund managers.  "Economic  growth in Armenia in the second quarter of 2019 increased to 6.5%  year on year. This week, the Central Bank raised its forecast for GDP  growth for this year to 6.9-7.1% from 4.9% (budgeted - Ed.) ", - they  remind in the agency. It is also noted that the Armenian economy is  still largely dependent on the Russian economy, "whose economic  downturn has hit Armenian exports in recent years," as well as on  remittances from Armenians working in Russia. But "Armenian officials  say the share of remittances in its GDP is gradually decreasing."

Touching upon the current economic indicators of Armenia, the agency  notes that the Minister of Finance Atom Dzhandzhugazyan told Reuters  last month that within two months the economy will receive an  additional impetus from tax reforms. "Next year, Armenia will reduce  corporate tax to 20% from 18%, introduce a flat fixed income tax rate  of 23% and increase excise taxes on tobacco and alcohol. Private  firms with a turnover of less than $ 50,000 a year will benefit from  zero taxes. Together with Moody's global rating agency in August  upgraded Armenia's sovereign rating from B1 to Ba3, but stated that  it was important to maintain the pace of reforms. It is expected that  economic growth will slow down in 2020, as Armenia needs more  structural reforms to become more competitive, "authors of article  declare.  "Growth remains volatile and narrowly grounded, reflecting  a slow transition to a competitive economy led by the private  sector," Julia Ustyugova, IMF Resident Representative in Armenia,  told Reuters. According to her, in the near future, growth will be  moderate and more stable at the level of 4.5-5%, adding: "Raising the  growth potential requires structural reforms."