YEREVAN, September 27. / ARKA /. Moody’s Investors Service has today assigned a rating of Ba2 to the Government of Armenia’s 700 million US$-denominated notes due 2020. The notes will bear interest at a rate of 6% per annum. The rating is derived from Armenia’s Ba2 government bond rating with stable outlook.
Moody’s notes that Armenia’s rating is supported by its prudent fiscal policy, which is reflected in recent deficit reduction from 7.5% in 2009 to 1.5% in 2012, in part achieved by under-realized capital expenditure and gradual revenue-mobilization. The latter is underpinned by tax reform to broaden the tax base and the introduction of a funded multi-pillar pension system from 2014 onwards. Other credit positive factors include the favorable cost of funding due to borrowings from official lenders.
The US$700 million note sale proceeds amounting to 7% of 2012 GDP will be used for general governmental purposes and potentially for infrastructure investment. They add to the general government debt stock of 44.1% of GDP to the extent that they are not used for the repayment of the US$500 million loan from Russia. At the same time, the note sale proceeds are set to temporarily boost gross foreign exchange reserves.
Moody’s also notes that the high degree of dollarisation in the banking system amid rapid, but slowing credit growth toward nominal GDP growth levels underpins the country’s medium financial event risk. This is particularly relevant if the country was to experience a foreign-exchange funding shortfall, mitigated in part by the central bank’s macro-prudential regulations regarding banks’ foreign-currency exposures. -0-
