Armenia's Ba2 government bond ratings and stable outlook are supported by its manageable debt levels, says Moody's Investors Service in its annual report on the country.
The ratings are constrained by the low level of economic and institutional development of the country, along with its concentrated economic base and volatile neighborhood.
“Armenia has not been directly affected by the global credit crunch although second-round effects are now being felt from the compression of world demand and the difficult conditions in Russia, its primary trading partner and the source of large diaspora remittances,” said Moody's Associate Vice President Joan Feldbaum-Vidra, Moody's sovereign analyst for Armenia.
She said growth is likely to decelerate sharply in the next few years even as the government moves forward with large public sector investment projects financed by multilateral funds. The spending on such projects should help sustain the growth momentum even as the fiscal deficits are set to shrink.
“The country's low government debt and minimal refinancing risks are allowing its rating to maintain a stable outlook in the current environment,” said Feldbaum-Vidra. “A weak revenue base is the main fiscal risk, although it is ameliorated by the very comfortable debt service profile, its good relations with its official creditors, and the liquidity provided by the expatriate Armenian community.”
Moody's reports that Armenia's economic prospects continue to be hampered by strained relations with Turkey and Azerbaijan, and that the border between Turkey and Armenia is closed, increasing the cost of both exports and imports.
“Armenia's low institutional strength is another constraint on its ratings,” said Feldbaum-Vidra. “The authorities are very keen to address this, recognizing that high levels of corruption and a suboptimal business climate need to be corrected in order to achieve long-term sustainable growth and to attract investment.”
Moody's first-ever ratings for Armenia were assigned in 2006 and include a Baa3 ceiling to foreign currency bonds and notes and a Ba3 ceiling for foreign currency bank deposits, all with stable outlooks. (press release)