Less than it should have been: economist on S&P's upgrade of Armenia's credit rating (exclusive)
On August 25, the S&P Global Ratings raised its long-term foreign and local currency sovereign credit ratings on Armenia to 'BB-' from 'B+' and affirmed its short-term foreign and local currency sovereign credit ratings at 'B'. The outlook is stable.
Mikayelyan claimed that the upgrade should not be viewed as a major change, citing Fitch's ratings of Armenia that fluctuated from "B" to "BB" over the last ten to fifteen years, saying also that the ratings depend on some current trends and situations in the international and national economies and ‘therefore, the upgrade should not be regarded as a dramatic or serious improvement.’
‘Armenia's economic growth rates are higher than the average trend, explained by external factors. The S&P notes the impact of Russian migrants (who moved to Armenia after the start of the Russian-Ukrainian conflict) and a large inflow of finances from Russia,’ Mikayelyan said.
He added, "Russian migrants did have an impact contributing to the growth rates a lot, but that doesn't mean that the rating’s upgrade is unjustified. What does a credit rating ultimately boil down to? It is how creditworthy a potential debtor is, how capable it is of paying debts at all. In this case, we see that the debt burden of the Armenian economy has reduced, and now the debt to GDP ratio, in particular, foreign debt, is less than several years ago."
In August 2023, Fitch rating agency’s experts predicted Armenia's state debt would stabilize at a low level in the next three years, saying that Armenia's government debt-to-GDP ratio fell sharply to 46.7% in 2022 from 60.2% in 2021, mainly due to the local currency’s appreciation, as well as a strong recovery in nominal GDP and fiscal consolidation.
Mikayelyan emphasized that a mere reduction in the debt-to-GDP ratio is enough to raise the sovereign credit rating. He did not rule out that this trend will change, as it is partly due to the appreciation of the dram against the dollar.
However, according to him, this trend has stabilized to some extent without major changes over the last 15 months. Accordingly, it would have been wrong not to reflect it.
"I do not think that this trend will not change, that this trend will persist forever. It is related to the current situation, but no one knows how long it can persist. Accordingly, the upgrade of this rating is justified. Moreover, I think that the upgrade is less than it should have been based on the objective indicators of the economy," Mikayelyan said.
According to the National Statistical Committee of Armenia, economic activity increased by 10.4% y/y in January-July after 11.4% y/y in January-June.
Armenian government’s growth projection for 2023 is 7%, while inflation is set at 4% (±1.5%). -0-
