January 27
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Fitch Ratings has revised the Outlook on Armenia's Long-Term Issuer Default Ratings (IDR) to Negative from Stable and affirmed the IDRs at ‘BB-‘, the press release said.

“The coronavirus shock negatively affects the Armenian economy due to its exposures to commodities (a majority of exports), the Russian economy (for remittances, trade and FDI) and to tourism, only partially offset by the benefit of a lower oil price.”

“This is in the context of Armenia’s relatively high net external debt and structural current account deficit, which is only partly financed by non-debt creating capital inflows. Despite a robust macroeconomic policy framework and continuing commitment to reform, the economic shock has put public debt on a markedly higher trajectory, and there are downside risks to our forecasts should the COVID-19 outbreak not be contained in 2H20 in line with Fitch's current baseline assumption.”

“Fitch projects that GDP growth partially recovers in 2021, to 5.5%, supported by a rebound in external demand, investment catch-up, and revival of private consumption and employment growth, with a moderate drag from fiscal tightening. However, in line with our global macro-economic forecasts, the pace of recovery will be highly dependent on the path of the health crisis and the extent to which the coronavirus outbreak can be contained in 2H20. If a second wave of infections materialises and lockdown measures have to be re-introduced, our economic and fiscal forecasts for Armenia could be subject to material negative adjustment.”

"General government debt is projected to rise from 53.6% at end-2019 to 59.2% of GDP in 2020 before falling back to 56.0% in 2021, upward revisions of 9.4pp and 7.4pp, respectively, since our last review, and well above the current 'BB' median of 46.5%."

“The coronavirus shock has increased external risks to the Armenian economy. Fitch forecasts the current account deficit remains high, at 8.5% of GDP in 2020 and 8.1% in 2021, compared with the 2018-2019 average of 8.8% and the current 'BB' median of 2.9%.”

What comes to key assumption, the authors noted: “Fitch assumes that Armenia will continue to experience broad social and political stability and that there will be no prolonged escalation in the conflict with Azerbaijan over Nagorno-Karabakh to a level that would affect economic and financial stability.

Fitch expects macroeconomic indicators to move in line Fitch's Global Economic Outlook forecasts, but acknowledges that these are likely to be subject to frequent and possibly significant downward revisions given the evolving nature of the global crisis.”

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