Fitch confirms Armenia’s weakness in absorbing further external shocks
Azerbaijan, Baku, Aug. 23 / Trend /
The current account deficit (CAD) of Armenia narrowed to 11% of GDP in 2011, but was still the second largest in Emerging Europe and the third widest among 'BB' rated sovereigns, Fitch Ratings said on Thursday.
"It is well above its pre-crisis level. Slowing growth in export earnings, linked to falling metals prices, will limit further progress in 2012," the agency's experts believe.
According to Fitch Ratings, with only half of the CAD financed by foreign direct investment, the remainder is financed by external borrowing, pushing up net external indebtedness.
According to the report, public debt may stabilise at around 45% of GDP. However, this ratio is unusually sensitive to exchange rate movements, given that 84% of public debt is in foreign currency, mainly from multilateral lenders.
Armenia will start to make net repayments to the IMF in 2013. CBA and government repayments to the IMF are to peak in 2013 at USD279m (2.6% of forecast GDP or one-sixth of CBA reserves). Reserves will therefore stay flat or decline. Fitch expects the government to seek a successor agreement to the Extended Fund Facility/Extended Credit Facility expiring in June 2013. The government expects to refinance its direct obligations to the Fund from multilateral sources.
"Armenia's ability to absorb further external shocks is weaker than in 2008, as government and external debt have multiplied. Pressure on reserves or the dram - following an external shock - would lead to negative rating action. Any shortfall in capital inflows would increase risks of currency devaluation," the agency believes.
Fitch Ratings has affirmed Armenia's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'BB-'. The Outlook on the Long-term IDRs is Stable. At the same time, Fitch has affirmed the Short-term foreign currency IDR at 'B' and Country Ceiling at 'BB'.