Moody’s maintains stable outlook on Armenia, despite country weaknesses

In its annual report on Armenia, Moody’s Investors Service said its Ba2 rating for local and foreign currency debt obligations and stable outlook balances the low debt burden of the government and economy as a whole against the country’s weak institutional capacity and modest level of economic development.

The government bond ratings and Moody’s assessment of a low risk of a payments moratorium in the event of a government bond default serve as the basis of Armenia‘s Baa3 foreign currency country ceiling for bonds.

“While Armenia‘s debt burden compares well with similarly rated countries, as a relatively poor nation in the process of transitioning to a market-based economy, Armenia‘s institutions are still relatively undeveloped,” said Moody’s Assistant Vice President Joan Feldbaum-Vidra, author of the report.

She said Armenia‘s general government debt burden — at about 17% of GDP and falling — compares favorably with other Ba2-rated countries. The terms of its debt are also very comfortable relative to its peers, with 90% of the total owed to multilaterals and having been procured on concessional terms.

“Another reflection of Armenia‘s nascent institutional maturity is the modest revenue take of the government, which is among the lowest of all CIS countries with taxes to GDP of only 15%,” said Feldbaum-Vidra. “The government is committed to raising this ratio to help reduce poverty by improving tax collection and broadening the revenue base.”

She said Armenia‘s large expatriate community provides an important boost to growth and liquidity. Increased business and consumer confidence domestically plus robust conditions in Russia, the principal source for remittances from the estimated eight-million-strong Armenian Diaspora, have attracted substantially more foreign exchange inflows.

“Double-digit growth continues, at one of the fastest rates registered in the world, reflecting the economy’s small size,” said Feldbaum-Vidra.

“The government’s fiscal and monetary policies are prudent.”

Still, she said, links between Armenia‘s political class and the business elite foster entrenched vested interests, while the level of financial intermediation remains low. There are also geopolitical uncertainties linked to the conflict in the Nagorno-Karabakh region.