December 15, 2017 / 9:12 PM / 6 months ago

Fitch Revises Armenia's Outlook to Positive; Affirms at 'B+'

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Armenia - Rating Action Report here LONDON, December 15 (Fitch) 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+'. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS Medium The 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. We expect growth to average 3.6% in 2018-2019 due to a still favourable environment for remittances and export growth. 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. We forecast 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. A moderate current account deficit mitigates external vulnerability arising from commodity dependence and the small size of the economy. It will also lead to the stabilisation, and then gradual reduction, of the country's high net external debt at 44.8% of GDP by end-2017 versus 20% for the 'B' median. Armenia's 'B+' IDRs also reflect the following key rating drivers: Armenia is exposed to external shocks but has shown a capacity to absorb them, helped by a credible monetary policy framework. After exiting deflation in April, inflation remains low, and is expected to average 1% in 2017 before converging to the Central Bank of Armenia's (CBA) target of 4% in 2018-2019. The central bank has kept interest rates on hold since early 2017 and has stated its readiness to tighten policies if demand side pressures increase. The banking system remains stable with strengthened capitalisation (capital adequacy ratio (CAR) 19.1% in October). Deposit and loan dollarisation have declined but remained high at 57% and 62%, respectively. The banking system's FX position is balanced and regulations are in place to prevent foreign-currency lending to non-foreign-currency generators. Non-performing loans (up to 270 days overdue) equalled 6.7% in October, down from a peak of 10% in March 2016. International reserves are above USD2.1 billion (above four months of current external payments). Fitch estimates that Armenia's liquid assets as a share of short-term liabilities (at 125% in 2017) will remain below the 'B' category median. Exchange rate flexibility, reduced external imbalances and access to external financing reduce the risk of near-term balance-of- payment pressures. After completing its IMF EFF agreement this year, Fitch expects the authorities to seek continued engagement with the fund. Armenia is in the process of modifying its fiscal rules. As government debt exceeded 50% of GDP in 2016, the previous fiscal rule required the government to target deficits lower than 3% of the previous three years' average GDP. This required an abrupt adjustment, which the government is unlikely to meet. New rules are likely to maintain the key 50% and 60% of GDP thresholds, while allowing a smoother fiscal adjustment path and favour capex over current expenditure. Armenia's fiscal credibility would also be strengthened by building a track record of meeting budgetary targets, as fiscal outturns in 2017 and 2018 will likely overshoot budgeted deficits, as in 2015 and 2016. Improving the country's medium-term growth prospects is likely to require further progress in reforming the investment climate and increasing domestic savings, as total investment is low at 18.4% of GDP. Armenia has structural strengths relative to peers in terms of higher income per capita and governance indicators. In April 2018, constitutional reforms will come into effect, with the Prime Minister becoming the Head of State and the President being elected indirectly by an electoral college/parliament. Fitch expects the general direction of economic policy to be unaffected. Fatalities and military incidents between Nagorno-Karabakh and Azerbaijan have picked up in intensity and frequency since late 2016. Meetings at the presidential and ministerial level between Armenia and Azerbaijan under the auspices of the OSCE Minsk Group in 2H17 have yet to make visible progress in stabilising the conflict, let alone resolving the Nagorno-Karabakh issue. Escalation is a material risk. SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO) Fitch's proprietary SRM assigns Armenia a score equivalent to a rating of 'B+' on the Long-Term Foreign Currency (LTFC) IDR scale. Fitch's sovereign rating committee did not adjust the output from the SRM to arrive at the final LTFC IDR. Fitch's SRM is the agency's proprietary multiple regression rating model that employs 18 variables based on three year-centred averages, including one year of forecasts, to produce a score equivalent to a LTFC IDR. Fitch's QO is a forward-looking qualitative framework designed to allow for adjustment to the SRM output to assign the final rating, reflecting factors within our criteria that are not fully quantifiable and/or not fully reflected in the SRM. RATING SENSITIVITIES 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. KEY ASSUMPTIONS Fitch assumes that Armenia will continue to experience broad social and political stability. Fitch assumes that the Russian economy will grow 1.8% in 2017 and 2% in 2018 and 2019. 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' Contact: Primary Analyst Erich Arispe Director +44 20 3530 1753 Fitch Rating Limited 30 North Colonnade London E14 5GN Secondary Analyst Ed Parker Managing Director +44 20 3530 1176 Committee Chairperson Michele Napolitano Senior Director +44 203 530 1882 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country Ceilings Criteria (pub. 21 Jul 2017) here Sovereign Rating Criteria (pub. 21 Jul 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001 Fitch Ratings, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the "NRSRO"). While certain of the NRSRO’s credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see here), other credit rating subsidiaries are not listed on Form NRSRO (the "non-NRSROs") and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below