RAEX-Europe said it has confirmed the sovereign government credit rating (SGC) of Armenia at ‘BB-’ (sufficient level of creditworthiness of the government) in national currency and at ‘BB-’ (sufficient level of creditworthiness of the government) in foreign currency. The rating outlook is positive which means that in the mid-term perspective there is a high probability of upgrading the rating score, RAEX-Europe said in a press release.
According to it, the fiscal underspending, as well as higher than expected budget income, caused the budget deficit to narrow further in 2019. Its estimation stands at 1.5% of GDP, which is 0.3 p.p. lower than in 2018 and 0.7 p.p. lower than the state budget projections for the year. In order to boost economic activity and increase tax compliance in the country, a new tax reform effective from January 2020 has been introduced, reflecting noticeable corporate tax rates reduction.
Therefore, in the mid-term perspective RAEX-Europe expects the fiscal policy to remain prudent, with the budget deficit to GDP ratio around 2.3% and on the back of rising capital expenditures and stable current spending, according to the Medium Term Expenditure Framework for 2020-2022.
The banking sector remains well-capitalized, with a strong liquidity, stable asset quality and subbed but positive profits. As of October 2019, the regulatory capital to risk weighted assets was 17.5%, NPLs to total loans stood at 5.2%, ROA and ROE was 1.7% and 11.1%, while the ratio of liquid assets to demand deposits was 110.7%.
Domestic credit provided by financial sector to GDP is expected to rise by 4% in 2019 until 67% as total loans grew by 13% since the beginning of the year; it is mostly related to the household sector. As of November 2019, household loans grew by 27% while loans to non-financial corporations barely grew at 5% since the end of 2018. The Central Bank of Armenia (CBA) has set additional capital buffers in the banking sector in order to be compliant with the Basel III regulation. Fully implementation of the new standards should positively impact banking sector stability.
Government debt structure remains stable. As of November 2019, short-term debt accounted for 4.6% of total debt, 15% had floating interest rate and FX-denominated debt remained elevated at 78.6%; however, this type of debt remains mostly concessional.
The economy showed remarkable growth in 2019 with more then 7% real GDP growth in 3Q reported by the national statistical service of Armenia as a result of solid private consumption and investment. On the production side, the largest growth belongs to the mining industry and accommodation and food service activities with 45.2% and 30% increase since the beginning of the year respectively.
