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Moody's Investors Service has downgraded Armenia’s credit rating and lowered its broader outlook for the Armenian economy, citing the anticipated economic downturn in Europe and Russia.


The Armenian government declined to comment on this on Wednesday. The Ministry of Finance could not be reached for comment throughout the day.

In a statement this week, Moody’s cut the government’s foreign and local currency issuer ratings by two notches to Ba2. It also revised from “stable” to “negative” the country’s sovereign debt outlook.

The risk assessment firm attributed the move to Armenia’s vulnerability to renewed recession in Europe and Russia. In particular, it warned of a possible fall in international prices of base metals, the country’s number one export item.

Moody’s also said that an economic slowdown in Russia could seriously reduce vital remittances sent home by hundreds of thousands of Armenian migrants working there.

Fitch, another ratings agency, kept Armenia’s debt rating unchanged “BB-” in September. It had lowered the long-term rating from “BB” in August 2009, citing the severe impact of the global recession on the Armenian economy.

The government scrambled to cushion that impact through large-scale concessional borrowing from multinational institutions such as the International Monetary Fund and the World Bank. Armenia’s foreign debt has more than doubled since 2008, a fact emphasized by Moody’s.

Moody’s noted at the same time Yerevan’s falling budget deficit, which is on course to be equivalent to about 4 percent of Gross Domestic Product this year. The government plans to slash it further to around 3 percent next year.

With the bulk of the Armenian deficit still financed by non-commercial loans from the World Bank, the IMF and other international institutions, the rating downgrade alone will hardly complicate the government’s fiscal performance in 2012.

It is based on the assumption that the domestic economy will grow by 4.2 percent in 2012. Finance Minister Vache Gabrielian admitted last week that renewed recession in Europe could call those projections into question.

“In effect, Moody’s considers a second wave of the [global economic] crisis almost inevitable,” Samvel Avagian, an independent analyst, told RFE/RL’s Armenian service (Azatutyun.am). “As an economist, I wouldn’t take that at face value.”

Still, Avagian described as “very worrisome” a fall in commodity prices forecast by Moody’s. “Armenia remains heavily dependent on metal prices because about half of our exports is mining output and metals, and they also account for a large share of our budgetary revenues,” he said.
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