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Fitch Ratings-London- 5 March 2009: Fitch Ratings says today that a proposed IMF loan facility for USD540m would support the adjustment of Armenia’s economy in the face of a global and regional economic shock, and support the outlook for its sovereign ratings. Armenia’s foreign and local currency Issuer Default Ratings (IDRs) are ‘BB’ with Stable Outlooks. The Country Ceiling is ‘BB+’ and the country’s Short-term rating is ‘B’.
“Armenia’s decision to seek a precautionary IMF programme and allow a freer float for the currency is a welcome signal of the authorities’ cautious approach to managing current difficulties,” says Andrew Colquhoun, Director in Fitch’s Sovereigns Group. “However, the reserves loss to end-January indicates the scale of the shock, and suggests there is little room for policy missteps which could undermine macroeconomic stability and increase downwards pressure on the ratings.”
With bank credit to the private sector of only 17% of GDP at end-2008, any potential problems in the still relatively well-capitalised banking sector should be more manageable than for most of Armenia’s regional
Armenia’s GDP growth slowed to 6.8% in 2008, from 13.8% in 2007. The economy contracted by 0.2% in Q408, hit by an 11% fall in construction.
The IMF projects that Armenia’s economy could shrink 1.5% in 2009, although the authorities expect growth of around 2% driven mainly by fiscal stimulus, partly funded from official sources. In addition to the likely IMF programme, Armenia is expected to receive a USD500m credit from Russia, and up to USD525m from the World Bank for SME financing over four years.
The public finances remain a rating strength, with government debt projected by Fitch at around only 14% of GDP by end-2008.