Moody's downgrades rating for Armenia
By Mushvig Mehdiyev
Moody's has downgraded Armenia's bond rating to Ba3 from Ba2 changing its outlook to negative from stable.
Moody's said Armenia's increased external vulnerability due to declining remittances from Russia, uncertain outlook for foreign direct investment, elevated susceptibility to exchange rate volatility, and expected pressure on foreign exchange reserves were the main factors to affect the changes.
Moreover, the country's impaired growth outlook, compounded by negative growth spillovers from Russia, weak investment activity, and constraints on trade with countries outside the Eurasian Economic Union that are expected from Armenia's recent EEU accession were also behind the worsening rating for Armenia.
Drop in GDP growth of Russia will also weaken the economic activity in Armenia, according to Moody's.
"Moody's expects a GDP growth decline in Russia to weaken the economic activity in Armenia given its historical correlation with the economic growth in the northern land," the agency said.
Meanwhile, the World Bank has projected a 3.3 percent economic growth for Armenia in 2015 compared to 5 percent rise in 2014, according to WB’s Global Economic Prospects report released this January.
The report said Armenia's GDP growth will reach 3.7 percent in 2016, while it will up to 4.1 percent in 2017.
The report suggests the 2015 GDP growth will be 4.4 percent and 5 percent respectively in Azerbaijan and Georgia, the regional neighboring countries of Armenia.
The authors of the report claimed that the economic growth rates has dropped sharply in CIS counties in 2014 mainly due to the drastic reduction in Ukraine’s production output. The decline in the Russian economy had a negative impact on trade and remittances which inflicted hard blows on Armenia's economy since the economic hassle started in its northern neighbor.
Sharp or stable reduction in remittances from Russia is a major risk factor for CIS countries, according to the report.
The authors expect a 3 percent economic growth in the world in 2015, while it will fluctuate between 3.3 percent and 3.2 percent respectively in 2016 and 2017.
The International Monetary Fund has also cut its growth forecast for Armenia from 4.3 percent to 3.3 percent in 2015, reflecting problems in its economy heavily reliant on foreign aid and Russian investment, according to Daily Mail.
Mark Horton, IMF Mission Chief, has earlier said there were some external factors and some internal factors behind the economic comedown in Armenia, including the slowing growth in Russia and in the region.
Armenia hopes to get a boost from its membership at the Russian-led Eurasian Economic Union - a trade bloc with Russia, Belarus and Kazakhstan, as some experts expect the Russian investments to reach $2-5 billion then. But Horton said the local businesses in Armenia needed more clarity from the government about the country's future move.
Horton said a decline in the budget deficit and private and foreign investment were among internal factors that had influenced the IMF's lower growth forecasts for Armenia.
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