YEREVAN, October 13, /ARKA/. The Standard & Poor’s said in a report it projects general government debt of Armenia to decrease to 48% by 2024 from 53% in 2021.
According to it, the swift reduction is because of exchange rate movements: the domestic currency, the Armenian dram, has appreciated notably following depreciation at the beginning of the year and almost three-quarters of government debt outstanding is denominated in foreign currency, predominantly the U.S. dollar.
This means that the change in government debt is significantly below the headline budget deficit this year, but it also highlights risks to Armenia’s debt metrics should the dram depreciate. Still, we note the predominance of concessional borrowing in the sovereign’s public external debt. Armenia will continue to benefit from funding from international financial institutions if needed, with significant undisbursed commitments already in place. At the same time, its international partners provide access to funding, including the EU, which recently pledged a €2.6 billion ($3.1 billion) economic support and investment package.
The ratings agency also notes Armenia’s strong capital market access, demonstrated by a $750 million 10-year Eurobond issued at a low 3.6% in February 2021 despite heightened political uncertainty.
‘We therefore think that international issuance will remain a strategic option for the government but understand that authorities are planning to increase issuance in domestic markets,’ it said.
It said: ‘ External pressures have abated notably since the end of 2020 as external buffers have been replenished. This reflects the stronger dram following the depreciating trend in 2020 and early 2021. International reserves have increased to $3.2 billion in August 2021, exceeding their end-2019 level by 13%, bolstered by the recent IMF’s Special Drawing Rights allocation, which was equivalent to $176 million.
Sound exports, supported by soaring copper prices and high remittances inflows, will help narrow the current account deficit in 2021. As labor remittances moderate and domestic demand sustains import growth, we expect the current account deficit to widen again to just below 4% of GDP by 2024. External debt net of liquid external assets (narrow net external debt, our preferred measure of external leverage) is set to decline to below 100% of current account receipts by 2023 after its surge to 130% in 2020. Gross external financing needs will hover near 110% of current account receipts and usable reserves over the next three years. External financing will likely be tilted more toward debt-creating inflows, including concessional debt, than foreign direct investment as we project rather moderate foreign direct investment inflows.’ -0-
