Fitch Ratings has affirmed Armenia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'B+' with a Positive Outlook.
According to Fitch, Armenia's ratings balance a credible monetary policy framework and stronger income per capita and governance indicators relative to peers against high public and external debt and tense relations with some neighbouring countries.
The Positive Outlook reflects Armenia's stronger growth outlook relative to peers, the start of a fiscal consolidation process that Fitch expects will deliver a gradual decline in government debt over the medium term, and institutions that have underpinned macroeconomic and financial stability through a period of significant political change.
The fiscal deficit in 2018 is on track to be better than budgeted, and well below the current peer median, due to an under-execution of spending. Fitch projects the state budget deficit to decline to 2.2% of GDP (4.3% current peer median) from 4.8% in 2017, and a target of 2.7%.
The new government is reviewing spending across all areas to understand its structure and pinpoint inefficiencies, which has slowed execution. Fitch expects a widening of the deficit to 2.6% of GDP in 2019 and 2020, slightly above the 2.2% and 2.3% government projections, reflecting our expectation of slower revenue growth and faster execution of expenditure.
Fitch projects a small primary surplus in 2018 and a broadly balanced position in 2019 and 2020, supporting a gradual decline in public debt. General government debt/GDP is forecast to fall to 56.2% at end-2020 from 58.9% at end-2017, compared with a current 'B' median of 60.5%. Debt is exposed to exchange rate risks; at end-October 2018 80.8% of government debt was foreign-currency denominated.
“The political transition that began with large-scale public protests and forced the resignation of the prime minister earlier in the year looks set for completion, following the scheduling of snap legislative elections for 9 December,” Fitch said.
According to the report, “The coalition headed by Nikol Pashinyan, the figurehead of the protest movement, appears on course for a parliamentary majority, which will smooth the implementation of an agenda that is focussed on fighting corruption and tackling the monopolies and vested interests associated with the previous administration.”
Fitch notes that the transition process has been peaceful and in line with constitutional mechanisms. Governance indicators, as measured by the World Bank, are slightly better than the current peer median.