Fitch revises Armenia's Outlook to Positive; affirms at 'B+'

YEREVAN, DECEMBER 18, ARMENPRESS. Fitch Ratings has revised Armenia's to Positive from Stable, while affirming the sovereign's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'B+', Armenpress reports citing the official website of Fitch Ratings.

There are several key rating drivers. The first factor is that Amenia’s economy is experiencing a strong recovery following a large external shock in 2014-15, driven by a structural improvement in export performance, firmer external demand conditions and recovering remittances, and supported by a credible monetary policy framework. Fitch has revised up its growth projection to 4.3% for 2017 from 3.4% previously, as GDP growth averaged 5.3% in 1Q-3Q. DGowth to average 3.6% in 2018-2019 is expected due to a still favourable environment for remittances and export growth.

The next factor is that Armenia has started to implement strong fiscal consolidation. Fitch forecasts the general government budget deficit will shrink to 3.3% of GDP in 2017, from 5.5% in 2016, reflecting expenditure restraint and favourable revenue growth. Fitch expects the general government deficit to narrow further to 3% in 2018 and 2.7% in 2019, below the 'B' and 'BB' medians.

Fitch's projections for the budget deficit and growth performance are consistent with stabilisation in government debt. Fitch forecasts debt to rise to 57.5% of GDP in 2017, slightly below the projected 58.6% 'B' median, peak in 2018 at 58.1% and gradually decline thereafter. Armenia's government debt structure has a high level of concessional debt (66% of total debt), but 81% is foreign currency-denominated, exposing it to exchange rate volatility.

Armenia has a moderate current account deficit, which Fitch forecasts at 3% of GDP in 2017 and to average 3.4% in 2018-2019. Domestic demand-driven import growth will be balanced by export receipts underpinned by stable commodity prices, diversification to new markets and stabilisation of the Russian economy benefitting export and remittances growth.

The main factors that could, individually or collectively, lead to an upgrade are:

- Confidence that the government debt-to-GDP ratio is on a downward trajectory;

- Sustained growth that supports convergence towards income levels of higher-rated sovereigns without increasing macroeconomic imbalances; and

- A sustained improvement in the external balance sheet.

The main factors that could, individually or collectively, lead to the Outlook being revised to Stable are:

- Failure to put government debt/GDP on a downward trajectory over the medium-term, for example due to fiscal slippage and/or growth underperformance.;

- A sustained fall in foreign exchange reserves; and

- An escalation in the Nagorno-Karabakh conflict leading to a material impact on the Armenian economy or public finances.

Fitch assumes that Armenia will continue to experience broad social and political stability.

The full list of rating actions is as follows:

Long-Term Foreign-and Local Currency IDRs affirmed at 'B+'; Outlook revised to Positive from Stable

Short-Term Foreign- and Local-Currency IDRs affirmed at 'B'

Country Ceiling affirmed at 'BB-'

Issue ratings on long-term senior unsecured foreign-currency bonds affirmed at 'B+'

Issue ratings on long-term senior unsecured local-currency bonds assigned at 'B+'

Issue ratings on short-term senior-unsecured local-currency bonds assigned at 'B'