Saturday, September 25 2021 19:07
Karine Melikyan

Fitch affirms Armenia at `B+`; upgrading forecast for GDP growth to  5.5% in 2021

Fitch affirms Armenia at `B+`; upgrading forecast for GDP growth to  5.5% in 2021

ArmInfo. Fitch Ratings has affirmed Armenia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. This is stated in the Fitch  report, which provides revised forecast for Armenia's GDP growth for  2021 towards growth. 

KEY RATING DRIVERS

''Armenia's 'B+' IDRs reflect strong per-capita income, governance  and business environment indicators relative to peers, as well as a  robust macroeconomic and fiscal policy framework and credible  commitment to reform that are underpinned by an IMF programme. Set  against these strengths are high public foreign-currency debt,  relatively weak external finances, and geopolitical tensions that  have the potential to reignite into military conflict.

Prime Minister Nikol Pashinyan's decisive win at the 20 June 2021  snap elections secured a parliamentary majority for his 'Civil  Contract' party and should resolve the domestic political crisis that  has ensued since the 6 November 2020 Russian-brokered ceasefire  agreement with Azerbaijan concluded the 44-day Nagorno-Karabakh war.  The election outcome refreshes the government's mandate to pursue key  structural reforms and tackle corruption, and is a further  endorsement of democratic-based politics as the second elections to  be widely acknowledged as free and fair following the 2018 Velvet  Revolution.  The new government has emphasised regional peace and  commitment to the OSCE Minsk group process to resolve the  Nagorno-Karabakh dispute, a marked softening in its tone from last  year. Nevertheless, periodic border incidents and minor infractions  of the ceasefire agreement are reminders of the possibility for  renewed fighting to erupt and the greater reliance on Russia for  security in the region'', the FITCH report reads.

GDP growth forecast for 2021 improved ''Real GDP staged a strong,  broad-based rebound in 2Q21 of 13.2% yoy, driven by base effects,  dynamism in construction, agriculture and services, and supported by  strong remittance inflows and continued accommodative policies. Fitch  forecasts real GDP growth to recover to 5.5% in 2021 (2020: -7.4%),  moderating to 5.3% in 2022 and 4.7% in 2023.  ''Risks to our  forecasts are fairly balanced, with the potential for faster economic  recovery offsetting risks of renewed economic restrictions from a  potential further intensification of the Covid-19 crisis in the  context of Armenia's slow vaccination roll-out (under 5% of the  population was fully vaccinated by mid-September).

Inflation to average 7.4% in 2021 Inflation accelerated to 8.8% yoy  in August 2021, above the Central Bank of Armenia's (CBA) target of  4.0%, driven primarily by global pressures on food prices (15.1%  yoy), rebounding demand from the 2020 recession, and bottlenecks in  supply chains. Fitch forecasts inflation to average 7.4% in 2021,  moderating to average 5.0% and 4.0% in 2022-23 as supply chains and  production adjust. The CBA has raised its policy rate by a cumulative  300bp to 7.25% between December 2020 and September 2021 in response  to domestic inflation pressures. An increase in banks' dram reserve  requirements, aimed at enhancing monetary transmission, has also had  the effect of tightening monetary conditions. An unexpected monetary  tightening by major central banks to curb rising global inflation  could lead to pressure on the CBA to further tighten rates.  External  debt to reach 55% of GDP at end-2021 A long record of large current  account deficits not financed by foreign direct investment flows has  resulted in high net external debt (NXD), which we forecast at 55% of  GDP at end-2021 ('B' median: 20%).

Public debt is high, with general government debt/GDP jumping 13pp to  peak at 67.4% (current 'B' median: 68%) at end-2020, due to the  fiscal impact of the pandemic and the Nagorno-Karabakh war's impact  on public finances, the fall in GDP and depreciation of the dram.  Fitch forecasts debt/GDP to fall to 60.2% in 2021 on strong nominal  GDP growth (13%), narrowing of the fiscal deficit, and strengthening  of the dram. Public debt/GDP should continue its gradual downward  trajectory to 55% by 2023, guided by the government's commitment to  its debt reduction fiscal rule, which will be reinstated from 2022.  Foreign currency debt is high at 81% of total government debt in 2021  ('B' median: 63%), and heightens sensitivity to exchange rate  fluctuations.

The narrowing of the goods and services trade deficit in 1Q21, growth  in remittance inflows and tightening monetary conditions have led to  the dram/US dollar appreciating by 6% in 8M21. Fitch forecasts the  recovery of imports as economic activity rises to contribute to a  normalising of the current account deficit to relatively high levels  of 4.4% of GDP in 2021 and 5.0% in 2022 (2020: 3.8%). Government  Eurobond proceeds, emigrant deposits, and modest FDI inflows are  expected to finance the deficit, and the residual and a USD175  million-equivalent special drawing rights allocation to raise  official reserves to USD3.1 billion by end-2021 (end-2020: USD 2.6  billion).

Government deficit to narrow to 3.8% of GDP in 2021 Fitch forecasts  the consolidated government deficit to narrow to 3.8% of GDP in 2021  (2020: 5.1%), and further to 2.0% by 2023. Fiscal performance for  7M21 showed an outperformance relative to both the government's and  Fitch's forecasts at the last review. Tax revenues rose by 10.5% yoy  driven by higher VAT receipts from a rebound in domestic consumption  and foreign trade, while investments and other expenditures were  under-executed relative to the budget at end-July. The deficit will  be financed predominantly by the USD750 million Eurobond proceeds  raised in February 2021, but deficit financing in 2022-23 will focus  more on domestic sources as the government seeks to reduce external  debt and limit vulnerability to dram depreciation.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to negative  rating action/downgrade:  - External Finances: A worsening of  external imbalances, potentially evidenced by higher NXD or wider  current account deficits, or emergence of external-financing  pressures leading to a fall in reserves and a rise in the interest  burden.  - Structural / Macro: Renewed escalation of the military  conflict with Azerbaijan over Nagorno-Karabakh or a  re-intensification of domestic political instability that leads to a  weakening of macroeconomic and fiscal policy direction or  credibility.  - Public Finances: A sustained upward trajectory in  general government debt/GDP over the medium term, for example due to  a structural fiscal loosening and/or further weakening in GDP growth  prospects.

Factors that could, individually or collectively, lead to positive  rating action/upgrade:  - Public Finances: Improved confidence in  general government debt/GDP returning to a firm downward path over  the medium term, for example due to a credibly defined fiscal  consolidation plan.  - External Finances: A sustained improvement in  external indicators, for example lower NXD, improved current account  deficit or FDI inflows closer to the 'BB' median.  - Structural:  Further improvement of structural indicators such as governance  standards, leading to convergence towards the 'BB' peer median, and  improvement in political stability. 

To note, at the beginning of September this year Moody's confirmed  Armenia's sovereign rating at 'Ba3', leaving the forecast stable,  expecting real GDP growth in 2021 by 4.5%. Moody's predicts that  Armenia will maintain its current account deficit at 4-5% of GDP  until 2022.  Moody's expects economic recovery and adherence to the  authorities' spending plan to support the reduction of public debt by  2022 to below 60% of GDP.


News
Make payments via Idram in online stores, get free delivery or a cashback and take part in the drawMake payments via Idram in online stores, get free delivery or a cashback and take part in the draw
Interest rates on loans and deposits have grownInterest rates on loans and deposits have grown
In Moscow, Suren Papikyan discussed issues related to In Moscow, Suren Papikyan discussed issues related to "North-South  Power Corridor" and construction of a new nuclear power unit in  Armenia 
Armenian Minister of Economy received Deputy Minister of Industry and  Trade of Czech RepublicArmenian Minister of Economy received Deputy Minister of Industry and  Trade of Czech Republic
Issue of feasibility of creating institution of business ombudsman is  being discussed at RA Economy Ministry Issue of feasibility of creating institution of business ombudsman is  being discussed at RA Economy Ministry 
Armenia is ready to cooperate in developing common approach to  protect EAEU internal market in case of pressure from third partiesArmenia is ready to cooperate in developing common approach to  protect EAEU internal market in case of pressure from third parties
Armenian government approves draft decision on increasing ANIF  authorized capitalArmenian government approves draft decision on increasing ANIF  authorized capital
Pashinyan: Formation of the common energy market of the EAEU is a  prerequisite for the full realization of the potential of economic  integrationPashinyan: Formation of the common energy market of the EAEU is a  prerequisite for the full realization of the potential of economic  integration
Official supplier of furniture for shops of number of world brands  and a pharmaceutical company received tax incentive from RA  Government Official supplier of furniture for shops of number of world brands  and a pharmaceutical company received tax incentive from RA  Government 
Water users will be reimbursed for rent for irrigation water for a  period of 5 years in the event of the introduction of drip irrigation  systems on an area of up to 3 hectaresWater users will be reimbursed for rent for irrigation water for a  period of 5 years in the event of the introduction of drip irrigation  systems on an area of up to 3 hectares
RA Minister of Economy did not rule out that Standard & Poor`s would assign credit rating to RA Minister of Economy did not rule out that Standard & Poor`s would assign credit rating to "Export Insurance Agency of Armenia" CJSC
S&P Improved the Outlook on Ameriabank to Positive S&P Improved the Outlook on Ameriabank to Positive 
S&P improves forecast for 2021 on Real GDP Growth in Armenia to 6.3%S&P improves forecast for 2021 on Real GDP Growth in Armenia to 6.3%
Expert: Building a 600 MW reactor would be the most appropriate  option for ArmeniaExpert: Building a 600 MW reactor would be the most appropriate  option for Armenia
Expert: It is reasonable to use stock exchanges for the formation of  market-based gas prices Expert: It is reasonable to use stock exchanges for the formation of  market-based gas prices 
Head of Ministry of Territorial Administration got acquainted with  work of  Agarak Copper-Molybdenum CombineHead of Ministry of Territorial Administration got acquainted with  work of  Agarak Copper-Molybdenum Combine
IMF stands ready to assist Government of Armenia in implementing its  ambitious reform agendaIMF stands ready to assist Government of Armenia in implementing its  ambitious reform agenda
Standard & Poor`s assigns sovereign rating to Armenia for the first  timeStandard & Poor`s assigns sovereign rating to Armenia for the first  time
Global Finance Names Ameriabank the Safest Bank in ArmeniaGlobal Finance Names Ameriabank the Safest Bank in Armenia
Revenue of the trade sector of Armenia for 8 months of 2021 exceeded  $ 4 billionRevenue of the trade sector of Armenia for 8 months of 2021 exceeded  $ 4 billion
Armenia will allocate more for military spending in 2022 than in  2021, but less than for servicing and paying off government debtArmenia will allocate more for military spending in 2022 than in  2021, but less than for servicing and paying off government debt
Armenia and Poland intend to intensify cooperation between startups  of two countriesArmenia and Poland intend to intensify cooperation between startups  of two countries
Global Finance names AraratBank the Best Sub-Custodian Bank in ArmeniaGlobal Finance names AraratBank the Best Sub-Custodian Bank in Armenia
Armenian government delegation to take part in Russian Energy WeekArmenian government delegation to take part in Russian Energy Week
Armenia participates in Europe`s largest trade fair for food within  EU4Business initiativeArmenia participates in Europe`s largest trade fair for food within  EU4Business initiative
Ambassador: Sweden welcomes the readiness of the Armenian government  to carry out systemic reformsAmbassador: Sweden welcomes the readiness of the Armenian government  to carry out systemic reforms
Gnel Sanosyan and Kishan Dan Dewal discussed the North-South  investment program and the possibilities of the Iranian port of  ChabaharGnel Sanosyan and Kishan Dan Dewal discussed the North-South  investment program and the possibilities of the Iranian port of  Chabahar
EIB stands ready to support the efforts of the Armenian government to  improve the business environmentEIB stands ready to support the efforts of the Armenian government to  improve the business environment
Minister of Economy took part in opening of PanArmenian Expo 2021  12th International Exhibition- ForumMinister of Economy took part in opening of PanArmenian Expo 2021  12th International Exhibition- Forum
Ambassador: Economic cooperation between Armenia and Slovenia does  not correspond to the existing potentialAmbassador: Economic cooperation between Armenia and Slovenia does  not correspond to the existing potential
Draft state budget: In 2022, Armenia will increase its national debt  by another $ 1.053 billion - to about $ 10.2 billionDraft state budget: In 2022, Armenia will increase its national debt  by another $ 1.053 billion - to about $ 10.2 billion
ANIF starts cooperation with Italian Intesa Sanpaolo group ANIF starts cooperation with Italian Intesa Sanpaolo group 
Tigran Khachatryan and Carolin Geginat discussed prospects of  cooperation between  RA Government and World BankTigran Khachatryan and Carolin Geginat discussed prospects of  cooperation between  RA Government and World Bank
Production of brandy became leader in terms of volume in Armenia`s  alcoholic industry, and whiskey production is leader in terms of  growth ratesProduction of brandy became leader in terms of volume in Armenia`s  alcoholic industry, and whiskey production is leader in terms of  growth rates
Freight and passenger transportation reaches double-digit growth  in ArmeniaFreight and passenger transportation reaches double-digit growth  in Armenia
Telecommunications revenue in Armenia increased by 4.8% in 8 months  of 2021Telecommunications revenue in Armenia increased by 4.8% in 8 months  of 2021
Head of Central Bank of Armenia met with President of Council of  Ministers of ItalyHead of Central Bank of Armenia met with President of Council of  Ministers of Italy
Central Bank of Armenia: Net inflow of transfers from individuals for  8 months of 2021 exceeded the pre- covid volume 2-foldCentral Bank of Armenia: Net inflow of transfers from individuals for  8 months of 2021 exceeded the pre- covid volume 2-fold
Armenian government prepares to issue Diaspora bondsArmenian government prepares to issue Diaspora bonds
Armenia`s metallurgical industry reaches double-digit growthArmenia`s metallurgical industry reaches double-digit growth
Pashinyan: The state will participate in all the promising investment  programs of GeoProMining in ArmeniaPashinyan: The state will participate in all the promising investment  programs of GeoProMining in Armenia
Armenia`s foreign trade with EU countries reaches double-digit growthArmenia`s foreign trade with EU countries reaches double-digit growth
Armenia`s foreign trade with EAEU countries intensifies at a rapid  paceArmenia`s foreign trade with EAEU countries intensifies at a rapid  pace
Armenia reduced production of aluminum foil by 3.9% in 8 monthsArmenia reduced production of aluminum foil by 3.9% in 8 months
Aram Sargsyan: The key to Armenia`s development is universal  diversificationAram Sargsyan: The key to Armenia`s development is universal  diversification
World Bank`s forecast on GDP growth in Armenia for 2021 turned out to  be more optimistic than the forecast of the Central Bank of Armenia -  6.1% versus 5.4%World Bank`s forecast on GDP growth in Armenia for 2021 turned out to  be more optimistic than the forecast of the Central Bank of Armenia -  6.1% versus 5.4%
In Armenia, y-o-y inflation in September 2021 reached 8.9% due to  increase in food pricesIn Armenia, y-o-y inflation in September 2021 reached 8.9% due to  increase in food prices
Ruling faction advocates gradual abolition of income tax refund  system on mortgage loans in YerevanRuling faction advocates gradual abolition of income tax refund  system on mortgage loans in Yerevan
Armenia and Russia discussed issues of Armenian-Russian economic  cooperationArmenia and Russia discussed issues of Armenian-Russian economic  cooperation
ACBA Bank: publicity and a new development paradigmACBA Bank: publicity and a new development paradigm
Production of solar energy has increased significantly in ArmeniaProduction of solar energy has increased significantly in Armenia
Total investment in the construction of a copper smelter, the second  open pit at ZCMC, an enrichment plant and a new nuclear power plant  of average capacity in Armenia is estimated at $ 3-3.5 billionTotal investment in the construction of a copper smelter, the second  open pit at ZCMC, an enrichment plant and a new nuclear power plant  of average capacity in Armenia is estimated at $ 3-3.5 billion
Growth of Armenia`s foreign trade turnover in 8 months of this year  significantly exceeded pre-COVID ratesGrowth of Armenia`s foreign trade turnover in 8 months of this year  significantly exceeded pre-COVID rates
Armenia will receive official grants of approximately USD 81.6  million in 2022Armenia will receive official grants of approximately USD 81.6  million in 2022
Iran is in TOP-3 of Armenia`s foreign trade partners after Russia and  ChinaIran is in TOP-3 of Armenia`s foreign trade partners after Russia and  China
Industrial growth is hampered by the decline of the dominant sector,  the manufacturing industryIndustrial growth is hampered by the decline of the dominant sector,  the manufacturing industry
In Armenia, growth of economic activity for 8 months by 4.9% of this  year is still inferior to pre-COVID 7% In Armenia, growth of economic activity for 8 months by 4.9% of this  year is still inferior to pre-COVID 7% 
Delegation of RA Economy Ministry will discuss possibilities of  expanding cooperation with Delegation of RA Economy Ministry will discuss possibilities of  expanding cooperation with "ALROSA" mining company in Moscow
Iran intends to take part in completion of the ``Tatu`` transit road  in ArmeniaIran intends to take part in completion of the ``Tatu`` transit road  in Armenia
Draft state budget: Current expenditures in 2022 will grow by almost  207 billion drams, 122.8 billion drams more will be allocated for the  social sector: Draft state budget: Current expenditures in 2022 will grow by almost  207 billion drams, 122.8 billion drams more will be allocated for the  social sector: 
Read more


Exchange rates
15.10.2021
RUB6.720.03
USD478.42-0.34
EUR555.06-0.83
GBP656.77-0.18
CAD387.540.79
JPY41.83-0.42
CNY74.30-0.03
CHF518.16-2.12