Armenia To Seek External Loan To Secure Economic Stability

ARMENIA TO SEEK EXTERNAL LOAN TO SECURE ECONOMIC STABILITY
by Venla Sipila

World Markets Research Centre
Global Insight
January 26, 2009

Armenia is hoping to boost its external finances with new bilateral
and multilateral loans. Indeed, quoting a government representative,
Interfax reports that the country hopes to receive a total of $1US
billion in external loans from Russia, the World Bank, the Asian
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the European Bank of Reconstruction and Development (EBRD). It was
reported that loan negotiations with Russia have been ongoing since
late December. The Russian Finance Minister Alexei Kudrin had confirmed
that talks are ongoing, but did not confirm the amount being considered
for the credit. In addition, Armenian authorities were reported to
be negotiating with China on the possibility of obtaining a loan of
$2US billion. The Armenian government hopes to use the credits to
stabilise the economy during the next year to 18 months.

Significance:After a prolonged period of double-digit growth, the
Armenian economy is now sharply cooling. While the direct impact of the
global financial crisis on Armenia has been modest, as its financial
sector is still relatively undeveloped and thus rather isolated, the
indirect effects of the financial turmoil and international economic
downturn are more notable. Indeed, the Armenian economy remains
very dependent on investment and remittance inflows, and the outlook
for these has recently sharply weakened as global liquidity remains
very tight, at the same time as Armenia’s current-account deficit
is deep. In addition, the already relatively poor export prospects
have further worsened, together with the global growth outlook. Given
Armenia’s reasonably good reform progress, its chances of receiving
concessional credits from international financial organisations
remain good. On the other hand, given the increased external risks,
developments in the Armenian external liquidity gap and the potential
deteriorating impact of these on the sovereign’s creditworthiness at
the moment necessitate close monitoring.