March 19, 2016 - 13:42 AMT
PanARMENIAN.Net - Moody's Investors Service on Friday, March 18 downgraded Armenia's long-term issuer and senior unsecured debt ratings to B1 from Ba3. Concurrently, Moody's has changed the outlook to stable from negative, the agency said. The key drivers for the downgrade to B1 are:
1. Armenia's increasing external vulnerabilities stemming from declining remittances from Russia that have not yet bottomed out; an uncertain outlook for foreign direct investment (FDI) inflows that collapsed in 2015; and an elevated susceptibility to renewed pressures on the local currency and the country's foreign exchange reserves;
2. Armenia's worsening fiscal and government debt metrics and the expectation that Armenia's general-government-debt-to-GDP ratio will rise above 50% in 2017 under the baseline assumption of a growing economy.
In the same action, Moody's has also lowered Armenia's long-term foreign-currency deposit ceilings to B2 from B1 and the long-term local-currency bond and deposit ceilings to Ba2 from Ba1. At the same time, the long-term and short-term foreign-currency bond ceiling and the short-term foreign-currency deposit ceilings remain unchanged at Ba2/NP and NP, respectively.
Upward pressures could be exerted on Armenia's issuer and government bond ratings following a reduction in Armenia's high degree of external vulnerability and/or the prospects that Armenia's government-debt-to-GDP ratio will show a firm downward trajectory over the medium term, Moody’s says. A reduction in Armenia's external vulnerability could be triggered, for instance, by a faster-than-expected economic stabilization of Russia, Armenia's largest single export market destination and key source of remittances and foreign direct investment, and the related positive spill-overs to the Armenian economy, it says. Also, a decrease in geopolitical risks could lead to upward pressures on Armenia's sovereign bond rating. Furthermore, significant improvements in the country's institutional framework and business environment, sustained economic diversification and a rise in Armenia's medium-term growth potential could create upward pressure on the sovereign rating, the agency concludes.