YEREVAN, August 21, /ARKA/ Moody’s Investors Service says that Armenia’s B1 issuer rating is supported by the country’s track record of robust economic and financial management through effective fiscal and monetary policies, and high debt affordability.
The economy is recovering solidly in 2017, on the back of an accommodative monetary policy and strengthening external demand. In addition, fiscal consolidation is in train to arrest a build-up in debt, following a period of expansionary fiscal policy.
Moreover, credit-positive commitments to pension and tax reform, trade liberalization and increasing infrastructure investment aim to boost the economy’s productive capacity and address the country’s low savings levels.
However, external risks remain prominent, given Armenia’s high economic exposure to Russia (Ba1 stable), generally low economic resilience, and reliance on external funding. In addition, geopolitical tensions with neighbouring Azerbaijan (Ba1 rating under review) remain prominent.
Moreover, Armenia’s fiscal strength has weakened when compared with a few years ago.
Moody’s conclusions were contained in its just-released credit analysis titled “Government of Armenia – Annual credit analysis – B1 stable” and which examines the sovereign in four categories: economic strength, which is assessed as “low”; institutional strength “moderate (-)”; fiscal strength “low”; and susceptibility to event risk “moderate (+)”.
The report constitutes an annual update to investors and is not a rating action.
The stable outlook on Armenia’s B1 rating reflects a balance of risks. Upward pressure on credit quality could stem from a sustained strengthening in foreign direct investment inflows, export earnings or remittance inflows, which would lead to an increase in economic strength and lower external vulnerability risk.
Moreover, a sustained decline in the government’s debt burden would be credit positive. And, a material decrease in geopolitical risks would improve creditworthiness, as would significant strengthening in Armenia’s institutional framework.
On the other hand, downward pressure on the rating could stem from a worse-than-expected economic situation in Russia, which would have lasting adverse effects on trade, remittances, investment inflows and Armenia’s foreign exchange reserves.
If measurements of debt deteriorate significantly, and if there are diminished prospects for stabilization in debt over the medium term, such a situation would be credit negative. A rise in geopolitical risks related to the unresolved conflict with Azerbaijan over the Nagorno-Karabakh could also lead to credit deterioration.-0-
