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."