ArmInfo.A leading index provider and data source of independent credit ratings Standard&Poors (S&P), has kept Armenia's sovereign rating at "B+" and "B" for issuing long-term and short-term liabilities in foreign and national currencies, with a stable outlook.
At the same time, as noted in a message released on October 10, S&P significantly improved the forecast for Armenia's GDP growth for 2022 from the previous 1.3% to an updated 8.6%, expecting an average growth of 4.3% per year in the next few years.
S&P analysts explained that so far, Western sanctions have not yet affected the Russian economy (along the chain, also the financial sector of Armenia) as significantly as previously assumed, including due to high global oil and gas prices. In addition, the influx of Russian citizens and capital has dramatically accelerated economic growth in Armenia.
According to the authorities of the country, since February 2022, 1,700 companies from Russia, Belarus and Ukraine have opened in Armenia, and another 3,100 entities have registered as private entrepreneurs. The number of non-resident employees in Armenia has grown to over 12,000.
Gas prices remain stable thanks to long-term agreements with Russia at a fixed price of $165 per thousand cubic meters, which is significantly below current world prices. This is important insofar as gas remains the main energy source for the Armenian economy (61% of the total energy balance) and approximately 80% comes from Russia, S&P analyst. note.
As a result, S&P significantly improves its forecast for the growth of the Armenia's economy for 2022, while warning that the republic nevertheless remains at risk of secondary impact of anti-Russian sanctions, given the high share of Russia in Armenia's foreign trade- about 30% of exports and about 40% of imports.
The agency's experts also refer to the resumption of hostilities on the border between Armenia and Azerbaijan as significant risks for the Armenian economy.
According to S&P analysts, sanctions against Russia may also prevent the Armenian financial sector from receiving loans from abroad. Until the end of 2022 and in 2023, an increase in budget expenditures is expected in Armenia, both current expenditures (including pensions increased since September) and capital expenditures (infrastructure projects). Based on this, S&P forecasts that Armenia's current account deficit will remain at the level of 4% of GDP in 2022, and will decrease to 3% of GDP in 2023-2025. To finance these expenses, negotiations continue on new foreign loans, including a stand-by loan from the International Monetary Fund.
At the end of 2022, S&P expects a significant reduction in the ratio of government debt to GDP - to almost 43% from 63% in 2021. "This should happen for three reasons. Firstly, economic activity in the country remains high. Secondly, tax collection has increased. Thirdly, the dram has revaluted against the dollar (by 17% since the beginning of 2022). This is significant because 63% of Armenia's public debt is in foreign currency. It should be noted that, according to the RA Statistical Committee, economic activity in Armenia increased in January-August 2022 by 13.9% per annum (against 4.9% a year earlier). For the whole of 2021, Armenia's GDP growth amounted to 5.7%, against a 7.2% decline in 2020.
The World Bank, in its new October forecast, improved its expectations for the growth of Armenia's GDP for 2022 from the previous 3.5% to the updated 7% - this is higher than the IMF's expected 5%, slightly lower than the EBRD's forecast of 8% and much more modest than the 12.9% announced by the Central Bank. According to the updated WB forecast, the ratio of Armenia's public debt to GDP will decrease in 2022 to 61.3%, continuing to decline in the next two years - to 61% in 2023 and to 59.9% in 2024. According to the WB's new calculation, the ratio of the current account deficit to GDP in Armenia will increase to 7% in 2022, then it will slightly decrease to 6.7-6.4% in 2023-2024.
