EFFECTIVE IMPLEMENTATION OF GOVERNMENT ANTI-CRISIS PROGRAM IS KEY TO FITCH RATINGS SOVEREIGN RATING
/ARKA/
September 22, 2009
YEREVAN
Exclusive interview of Andrew Colquhoun, Director, Emerging Europe
Sovereigns, Fitch Ratings, to ARKA news agency.
ARKA – What are the exact reasons behind the decision to downgrade
Armenia’s rating and what are the possible consequences of this move,
particularly, in the context of creditworthiness?
Fitch Ratings – The downgrade reflects Fitch’s view that the
severe impact of the economic and financial crisis on Armenia
has damaged the country’s medium-term prospects and fundamental
credit-worthiness. Fitch anticipates that Armenia’s public and external
financing needs will remain high as the government and current-account
deficits will take time to narrow, while the debt being contracted
to finance anti-crisis measures will need to be repaid. The Stable
Outlook is based partly on the large amount of financial support
Armenia has received from international partners including the IMF
and Russia, which in Fitch’s judgement should head off the risk of
an intensification of the crisis in the near term.
How could you assess the macroeconomic situation in Armenia?
Fitch Ratings – Fitch expects Armenia’s economy will contract by
about 15% in 2009, which would be the third-worst outcome for any
country we rate. The economy has been hit hard by a sharp drop in
r emittance inflows and by a stop to bank credit growth, while the
weak global economy has also affected foreign direct investment and
exports. Fitch projects a modest recovery in 2010 with growth of 2%,
but Armenia’s prospects of course depend on what happens in the region
(particularly Russia) and the world.
Do you think Fitch Ratings may revise its rating and outlook for
Armenia’s economic decline and the ratings of commercial banks before
the end of the year?
Fitch Ratings – All our ratings are continually subject to review
if events justify it. Intensified stress in the external finances
and/or the financial system could trigger a further downgrade. A
breakdown in the policy framework would also be negative for the
ratings, although we do not expect this to happen. On the other hand,
evidence that Armenia was making a sustainable economic recovery with
narrowing current account and government budget deficits could put
upwards pressure on the ratings, although probably not this year.
How would assess the efficiency of Armenian government’s anti-crisis
program? Do you think the government’s performance needs to be changed
and what are the best measures to mitigate the negative impact of
the crisis and help the country out of it as quick as possible?
Fitch Ratings – Fitch regards the quality of economic policy management
by Armen ia’s authorities as strength at the rating level. The
authorities demonstrated an impressive degree of flexibility when
the crisis broke.
Effective implementation of Armenia’s IMF-backed anti-crisis programme
is a central sovereign rating support, in Fitch’s view.
What are your forecasts about future volume of money transfers to
Armenia and what is their impact on the economy?
Fitch Ratings – We do not separately forecast remittance flows, but
we expect total net transfer receipts roughly to halve in 2009 on 2008.
According to the IMF’s data summary, private transfers were USD111m
in Q109, against USD158m in Q108. Lower remittances will depress
consumption and investment, particularly construction, in Armenia. What
happens to Armenians working in other countries – whether they lose
their jobs and come home or find new jobs – is a major source of
uncertainty for Armenia’s outlook.