Fitch Ratings downgrades ratings for Armenia

/By AzerNews/

By Mushvig Mehdiyev

Fitch Ratings, a global rating agency dedicated to providing value beyond the rating through objective and balanced credit opinions, research and data, has downgraded its financial ratings for Armenia, reported Reuters.

Reuters said Fitch has pulled down Armenia's long-term foreign and local currency Issuer Default Ratings to "B+" from "BB-", while kept the outlook stable in its latest report.

The issue ratings on Armenia's senior unsecured foreign and local currency bonds have also been downgraded to 'B+' from 'BB-'.

Fitch Ratings revised Armenia's Country Ceiling 'BB-' from 'BB' and affirmed the short-term foreign currency IDR at 'B'.

Regression in Fitch report is mainly based on Armenia's high subjection to severe economic downturn in Russia, which will weigh heavily on Armenia's balance of payment and growth prospects. Moreover, the economy in the post Soviet-country is expected to fall into a mild recession in 2015 due to the risks tilted to the downside amid the worsening economic situation in Russia, as well as negative impact on external imbalances and further depreciation pressures.

The current account deficit in Armenia is predicted to widen again in 2015 based on a sharp reduction in both remittances inflows and export demand from Russia. Remittances share about 15 percent of Armenia's GDP and fell by 30 percent during the last months of 2014. The impact of the fall in oil prices on Armenian imports will be largely outweighed by the dollar's strengthening and a decline in international prices of key Armenian exports. Mining exports, especially copper, account for about half of Armenia's overall exports.

Foreign currency reserves at the Central Bank of Armenia are expected to continue their downward trend from a relatively low level of $1.49 billion in December 2014. The decline in reserves is primarily due to lower current account receipts and foreign direct investment inflows.

Medium public debt dynamics in Armenia are highly sensitive to depreciation risks, as foreign currency denominates about 80 percent of public debt, according to Fitch Ratings.

Fitch Ratings claim that Armenia is highly reliant on Russian gas supplies, remittances and military support, leaving it particularly vulnerable to economic and policy changes in Russia. The former Soviet nation's accession to the Eurasian Economic Union in January 2015 will further deepen its economic, financial, political and institutional ties with Russia.

The financial sector in Armenia is highly dollarized and will, therefore, be impacted negatively by the depreciation of the Armenian dram, which has lost its value by 17 percent last year.

Fitch Ratings expect the inflation rate in Armenia to jump to 6.5 percent in 2015, on contrary to the CBA's forecast around 2.5-5.5 percent.

Armenia's conflict with Azerbaijan over the Nagorno-Karabakh region entails the risk of escalating into a full-scale conflict and no resolution is expected in the short term, according to Fitch Ratings.

The Nagorno-Karabakh region and seven adjacent districts are the historical and internationally recognized lands of Azerbaijan that occupied by Armenia, displacing over 1 million and killing dozens of ethnic Azerbaijanis. Armenia is persistently ignoring the international calls to unconditionally withdraw its troops form the occupied lands.

Moody's, another influential financial organization, has also earlier in January downgraded its ratings for Armenia, explaining it mainly with the country's extreme dependence on Russia's economic developments.

One more international financial structure, the European Bank for Development and Reconstruction has even annulled the economic growth expectations in Armenia in 2015.