Fitch downgrades flagging Armenia

Fitch downgrades flagging Armenia
# 14 August 2009 14:12 (UTC +04:00)
Baku. Elmin Ibrahimov – APA-Economics. Fitch Ratings on Thursday cut Armenia’s rating by one notch, saying its narrowly-based economy was poised to show one of the worst contractions globally this year, partly because of the economic storm in Russia.

With a lack of other funding options, a sharp fall in remittances from Russia and the re-dollarisation of bank deposits after Armenia’s dram devaluation undermined confidence in the currency.

Fitch cut Armenia’s long-term foreign and local currency Issuer Default Ratings to ’BB-’ from ’BB’ with stable outlook, supported by still moderate levels of public and external indebtedness.

The agency has also downgraded the Country Ceiling to ‘BB’ from ‘BB+’ and affirmed the Short-term foreign currency IDR at ‘B’.

"Unlocking Armenia’s economic potential and restoring strong and sustained growth necessary to reduce poverty and raise incomes will be much harder as a result of the crisis," Andrew Colquhoun, Director of Fitch’s Sovereigns Group, said in a statement.
He said he expected Armenia’s economy to shrink 15 percent in 2009, the third-worst outcome expected for any Fitch-rated sovereign.
Remittance inflows, which were worth some 9 percent of GDP in 2008, have fallen sharply as the Russian economy, where many Armenians work, has suffered a severe recession. The fiscal deficit is now projected to reach 7.5 percent of GDP in 2009 and the current account deficit could hit 13 percent.
Inflows of foreign direct investment were just USD27m in Q109, less than one-quarter the level in Q108, while exports almost halved in H109, despite a 20% devaluation of the Armenian dram against the US dollar in March 2009.

In early June, Fitch Ratings affirmed Azerbaijan’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ’BB+’ with Stable Outlooks. The agency has also affirmed Azerbaijan’s Country Ceiling at ’BB+’ and Short-term foreign currency IDR at ’B’

Azerbaijan’s sovereign rating is underpinned by its large hydrocarbon endowment and the oil windfall of recent years, which has enabled the sovereign to build up a strong and liquid balance sheet that leaves it relatively well placed to navigate through the challenging global environment, said Fitch.
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