Fitch: Proposed IMF Programme Would Support Armenia’s Ratings

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.

Artur Papyan

Journalist, blogger, digital security and media consultant


  1. “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.”
    Mr. Colquhoun, I am sorry, but among the LITTLE commotion of the slight, minor, delicate, controlled, well-planned, professionally executed currency movement, I couldn’t hear you well. How much room did you say is left for “policy missteps?”
    Ahhh~ yes … of course… a “little.” Now I get it. 🙂

  2. How does loading more debt retain the same credit rating is beyond me. Unless they think that the covenants of the new debt will prevent the Armenian government from these policy missteps as the decision making is effectively outsourced to some mid level manager at IMF.

    1. Nazarian – that’s actually what I was thinking, but couldn’t formulate clearly. I mean – the Fitch rating before Armenia’s taking over $1,5 billion worth of credits from the IMF, WB was ‘BB’.
      Now, as the country’s GDP is slumping, major taxpayers are hit hard, budget revenues are declining + the country is taking on extra $1,5 US – the rating is still ‘BB’? How come?

      1. nazarian and Observer,
        You assume that the rating agencies are either honest or competent. In fact, they are neither. The evidence points that out. For example, several years ago the same rating agencies were giving AAA rating to securitized mortgages; today we call them “toxic” mortgages. 🙂
        Take whatever the rating agencies are saying with a grain of salt. Or pepper.
        The investor class in the USA doesn’t believe them. And the agencies stock prices are down. That’s how the market votes. That’s how the real life works.
        When will the Armenian government issue its bonds? Let’s see who the buyers are and what price they pay and how much they buy.

      2. Moody’s (one of three major rating agencies) stock is down from $70 to $16. I wonder what is Moody’s rating. What is Fitch’s rating? Haha…
        I don’t believe the Market trades credit default swaps for Armenia. That would be the real test as to creditworthiness of Armenia.

  3. BTW, Fitch rating of BB is non-investment ‘high yield’ or ‘junk bond’ rating.

  4. 1. Fitch’s rating is just an opinion. At best. You take a risk with such “expert” opinion. In the past, Fitch has been found to be unreliable. Ask the MBS purchasers. Hahaha…
    2. The following excerpt is from Fitch’s website:
    a. “Ratings are based upon information obtained directly from issuers, other obligors, underwriters, their experts, and other sources Fitch Ratings believes to be reliable.” So, Fitch gets its information directly from the truthful government of Armenia. Shall I say more? 🙂
    b. “The agency does not audit or verify the truth or accuracy of such information, and has undertaken no obligation to so audit or verify such information or to perform any other kind of investigative diligence into the accuracy or completeness of such information.” Ooops… You mean to say they didn’t look into the books? Darn. You mean to say that Fitch’s rating may be untruthful? Even inaccurate? (wink)
    c. “If any such information should turn out to contain misrepresentations or to be otherwise misleading, the rating associated with that information may not be appropriate and Fitch Ratings assumes no responsibility for this risk.” Hey, guys, if you lent money to the government of Armenia and it defaults, don’t blame us. LOL.
    d. “The assignment of a rating to any issuer or any security should not be viewed as a guarantee of the accuracy, completeness, or timeliness of the information relied on in connection with the rating or the results obtained from the use of such information.” We offer no guarantee, warranty or return policy. Suckers!
    e. “Ratings do not constitute recommendations to buy, sell, or hold any security, nor do they comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of any payments of any security. Ratings are not themselves facts, and therefore cannot be described as being ‘accurate’ or ‘inaccurate’.” Oh, they admit what I said before! Here is the translation boys and girls – “B” or “BB” or “BB+” or “XYZ” is just our opinion. If you want the facts, ask the three stooges (Serj, Tigran, Artur).
    I hope this was helpful.
    P.S. I noticed that certain politicians, economists and so-called experts have been using the analysis at this post to comment about the ongoing currency debacle without giving credit where credit is due. Amot. Te anamot? 🙂
    Therefore, any Armenian (and non-Armenian) economist or politician (opposition or not) may use this analysis with the express condition that credit be given to Observer and me (and other thoughtful commentators) every time they use or abuse it. 🙂
    However, considering the dire economic condition of our beloved Republic, I hereby allow the upper echelon of the government to steal my analysis without impunity and shame as long as they are in power. Or until the civil society collapses.

  5. I follow your posts for quite a long time and must tell you that your posts always prove to be of a high value and quality for readers.

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