Fitch Ratings: Proposed IMF Programme Would Support Armenia’s Ratings
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YEREVAN, MARCH 6, NOYAN TAPAN. Fitch Ratings said on March 5 that a
proposed IMF loan facility for USD540m would support the adjustment of
Armenia’s economy in the face of a global and regional economic shock,
and support the outlook for its sovereign ratings. Armenia’s foreign
and local currency Issuer Default Ratings (IDRs) are "BB" with Stable
Outlooks. The Country Ceiling is "BB+" and the country’s Short-term
rating is "B".
According to the Press Service of the Central Bank of Armenia (CBA),
"Armenia’s decision to seek a precautionary IMF programme and allow a
freer float for the currency is a welcome signal of the authorities’
cautious approach to managing current difficulties," said Andrew
Colquhoun, Director in Fitch’s Sovereigns Group.
IMF Managing Director Dominique Strauss-Kahn has requested that the
IMF’s Board approve a USD540m, 28-month Stand-By Arrangement for
Armenia, at a planned 6 March meeting. A programme approval would
follow a 24% fall in official reserves to USD1.26bn by end-January
2009, from USD1.66bn at end-2007.
The CBA has said it spent USD360m supporting the Armenian dram (AMD) at
around 305 to 1 USD during 2008, to support confidence in the
partly-dollarised financial system amid global financial turmoil and
political tensions. The CBA says it will now permit greater
exchange-rate flexibility, and expects the AMD to settle around 370 to
the USD.
However, the CBA has held back from formally committing to an AMD
target or band.
The IMF programme will include support to Armenia’s banks, enabling
them to absorb the consequences of AMD depreciation for the 38% of
loans in the system denominated in foreign currency. With bank credit
to the private sector of only 17% of GDP at end-2008, any potential
problems in the still relatively well-capitalised banking sector should
be more manageable than for most of Armenia’s regional peers.
Armenia’s GDP growth slowed to 6.8% in 2008, from 13.8% in 2007. The
economy contracted by 0.2% in Q4 08, hit by an 11% fall in
construction. The sharp downturn in the Russian economy in Q4 08 is
likely to have affected remittance receipts, an important source of
foreign exchange and demand. The IMF projects that Armenia’s economy
could shrink 1.5% in 2009, although the authorities expect growth of
around 2% driven mainly by fiscal stimulus, partly funded from official
sources. In addition to the likely IMF programme, Armenia is expected
to receive a USD500m credit from Russia, and up to USD525m from the
World Bank for SME financing over four years.
Securing and successfully implementing the IMF programme and sustained
domestic policy discipline would support the ratings. According to the
IMF, geopolitical risk remains a background feature in a volatile
region, although there have been signs of progress towards a resolution
of Armenia’s frozen conflict with neighbouring Azerbaijan. Domestic
political risk appears to have eased after the election-related
violence of March 2008, although a downturn in the economy could spark
further unrest. The public finances remain a rating strength, with
government debt projected by Fitch at around only 14% of GDP by
end-2008.
From: Emil Lazarian | Ararat NewsPress
