YEREVAN, October 5, /ARKA/. Fitch Ratings has affirmed Armenia’s Long-term foreign- and local currency Issuer Default Ratings (IDR) at ‘BB-‘ respectively. The Outlook on the Long-term IDRs is Stable. At the same time, Fitch affirmed the Short-term local currency IDR at ‘B’ and Country Ceiling at ‘BB’.
“Armenia’s economy is recovering after recording one of the sharpest contractions in the world in 2009. Real GDP has turned positive and pressure on foreign currency reserves and the exchange rate have eased,” said David Heslam, Director in Fitch’s Sovereign team.
“An extended IMF programme underpins confidence in continued policy discipline and official international financing is helping to ease the necessary economic adjustment.”
“Nevertheless, Armenia has large twin current account and budget deficits and policy loosening in the face of the global economic shock, combined with the scale of the 2009 economic contraction, have left a costly negative legacy on the sovereign credit profile in terms of higher government and gross external debt. These will take time to correct,” added Mr. Heslam.
Real GDP contracted 14.2% in 2009. Official estimates point to real GDP growth of 6% in H110 and Fitch is forecasting GDP growth of 5% for the year as a whole. Fiscal loosening caused the general government deficit to widen to 7.7% of GDP in 2009 from 0.7% in 2008.
A stronger economic growth backdrop and good revenue performance so far in 2010 increases confidence that the government will reduce the deficit this year to its target of 4.9% of GDP. The IMF programme targets an annual pace of budget deficit reduction of 1pp of GDP in 2011 and 2012, with the deficit forecast at 2.3% in 2013. Part of this reduction reflects plans to increase tax revenues by about 0.5pp of GDP per year, via improvements in tax administration. Previous attempts to increase tax revenues have, however, been frustrated. Should plans to raise tax revenues fail, the government has pledged to rein in planned expenditure to meet its deficit target. -0-
