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Moody's upgrades Armenia’s sovereign rating for the first time since 2006: Armenian Prime Minister’s statement at Cabinet meeting


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Prime Minister Nikol Pashinyan - Hello, dear colleagues. I am glad to see you. Let us briefly discuss 1-2 questions before moving on to the meeting agenda.

First, let us start with good news. You are aware that Moody’s international ratings agency has upgraded Armenia’s sovereign rating. This was a long-awaited event ever since 2006; I mean that our country’s sovereign rating had not been amended since 2006.

Mr. Khachatryan, we can also tell our public why this is an important event, and why economists value it so much.

Minister of Economy Tigran Khachatryan - Thank you.
Dear Prime Minister,
Dear Colleagues,

In a statement issued on Tuesday, Moody’s ratings agency said it has upgraded Armenia’s sovereign rating to Ba3 from B1.

I would like to advise that along with Standard & Poor’s and Fitch ratings agencies, Moody’s provides expectations and opinions for international investors on the macroeconomic and overall economic policy and development prospects of a given country.

And the fact that Armenia’s sovereign rating has been raised again for the first time in recent years after going down in 2015 and 2016, shows that the Government’s economic policies are perceived and qualified as fairly positive by the aforementioned organizations, with expectations emerging in the background that the development outlook is seen to be sustainable in the near future.

There are several components that influence a ratings agency’s assessment. For instance, macroeconomic stability, which stems from the stability of consumer prices and exchange rates, the government’s fiscal policy and tax revenues, the deficit/debt ratio, and all other important macroeconomic factors. But no less important are the structural reforms the government is pursuing with its current economic policy.

When talking with Moody’s experts in Armenia, we long argued that at this stage the Government’s economic policy should focus on the growth of renewable resource-based processing industries and pay close attention to competitiveness and productivity. The same is true for our policy in the field of services and the importance of the tourism sector.

We have discussed the recent developments, in particular in the context of or in terms of tourism growth, and all of the positive expectations that economies and investors have for future developments.

We have also talked about the importance of increased tax revenues as a result of improved administration, which, in addition to tax revenues, is also indicative of equal competition in the economy and equal treatment of all. that is, the fact that the economy is no longer afraid of a corrupt governance system, that the economy responds favorably to the new way the Government treats entrepreneurs and their willingness to pay taxes. This is a new level of confidence, which is important from the perspective of foreign investors, and which is reflected in our country’s sovereign rating.

These are important factors, and it is extremely important, Mr. Prime Minister, that we have a tendency, that is, that we are on the rise, and that the rating we have now foretells positive changes, as well as anticipation of future stability.

Prime Minister Nikol Pashinyan -
Thank you, Mr. Khachatryan. Mr. Yeritsyan, is there anything to add on behalf of the Central Bank?

Central Bank Deputy Chairman Nerses Yeritsyan - Thank you, Mr. Prime Minister. Of course, we would like to make a few comments.

First of all, let us emphasize that the sovereign rating has been improved for the first time over many years, and that dynamics is very important. The second emphasis is the most important. Considering that Armenia’s rating had been deteriorating since 2016 due to reliance on remittances and great exposure to the impact of Russia’s economic shocks, Moody’s is in fact recording for the first time that this reliance on both remittances and international shocks has boosted our economy’s resilience.

This is the most important message coming from Moody’s, especially focusing on the initiatives of private global companies in the field of economic diversification and high technology research. They visited the Engineering City, Synopsys, the Tumo Center, and realized that the next phase of growth could be driven by autonomous investment, and that the sector could bring serious stability in terms of eliminating growth volatility.

This is the most important message, and we can improve the rating in the very near future if the government completes the reforms it has announced, especially as regards the fight against corruption and the judiciary reform. This is the main condition for improvement.

I would also like to emphasize the following: ratings are not just sovereign, but in a few other areas where we are obviously above all other countries in the region. In our national currency, which speaks to the stability and efficiency of our fiscal and monetary policy, and the smoothness and stability of the banking system, the upper limits of bond issuance and long-term bank deposits in the national currency were rated Baa2, which is an investment rating.

There are two groups of ratings: non-investment ratings and investment ratings where the investment interest is too high. This is essentially a new level of presenting our financial system and macro environment to international investors. This means that if our financial institutions or private sector enterprises issue local currency issuances, that is, if they issue government-issued equity capital markets, then a higher rating of 4 and thus better conditions for these securities to enter international markets can expect. This is also one of the most important messages.

And the last most important message is that we should be prepared to reissue Eurobonds, and the Government has already passed a decision to that effect. This implies lower prices in international markets, which will be our greatest achievement. I mean the tens of millions of dollars saved for the release period. Thank you

Prime Minister Nikol Pashinyan – Now the floor is yours, Mr. Janjughazyan.

Minister of Finance Atom Janjughazyan - Thank you. I suppose there is a need to complete the picture and balance out our common perception. The rating is extremely important in terms of public debt, especially given that as a middle-income country, borrowings will henceforth be less affordable for us as the main way of attracting debt.

And in our perspective, our path to securing our large-scale and not-so-large-scale projects through debt-driven debt is valued as a prospect.

It should be borne in mind that we are discussing all possible refinancing options for the two Eurobond issues so far, and regardless of the options available, the ratings that the country has, not only the country but also the ratings of the financial instruments, are extremely important in each case.

Mr. Yeritsyan was right to state that in fact, they are in the range of investment risk assessment. Why the need to balance it all out? If we are to say in the language of finance, there is also some element of advance payment. That is to say, based on the positive dynamics, it is assumed that we should record with our efforts the situation that was formed as a expectation. In other words, that expectation is an opportunity for us to substantiate the expectations.

We should also take into account the second aspect, namely that the top rating is 3A, that is, we must do our best to make borrowed resources more accessible for us. In other words, we need to be a benchmark for others. Thank you:

Prime Minister Nikol Pashinyan - Thank you, Mr. Janjughazyan, please Mr. Grigoryan.

Deputy Prime Minister Mher Grigoryan – I would like to mention two more points, Mr. Prime Minister, because I think we are talking about a truly important event and a very positive one.

First of all, I have met with Moody’s experts and discussed our strategic goals with them, and in view of the assessment I think the strategic goals have been considered adequate, accurate and up-to-date by them.

Second, I wanted to talk about the practical impact of this event on the private sector. This cannot but cause interest rates to fall in the market one way or another. Why, because first of all, private Armenian companies that have a Moody's rating will probably also increase that rating by 90%, which would mean that the interest rate on these companies, and in particular the banks' external funds, will be reduced to some extent. This will lead to a certain decrease in interest rates in the Armenian market.

This is important not only because interest rates will fall, but also the international financial markets are getting closer to the Armenian private sector in terms of accessibility.

Prime Minister Nikol Pashinyan - Well, thank you. Let me just say that, according to the Central Bank statement, interest rates on dram loans in Armenia have fallen by 3% over the past two years, with interest rates on dollar loans down by 1%.

Mr. Yeritsyan, in connection with what you said: the government has no reason not to complete the promised reforms.

Mr. Janjughazyan, in connection with what you said: I think we already have a definite answer concerning the advance payment, because the Statistics Committee has published the July economic data, and we have good indicators for that moth.

In addition, I would like to emphasize that we have an economic activity index of 8.1%, which is a very good indicator. In addition, industrial production increased by 16.1%, construction grew by 4.1%, trade turnover increased by 9.1%, services grew by 14.9%, average nominal wage increased by 8%, and export increased by 19.5% in July.

And in the first 7 months of the year, the pace of economic activity stepped up again, with industrial output growing at a steady pace of 8%. The other indicators should have already been published on the official website of the Statistical Committee.

In general, what does analysis of this year tell us? My personal conclusion is that recording double-digit economic growth is not a science fiction thing.

The biggest bottleneck today is that we are facing a problem with the timing of capital investments, and if that problem had been effectively resolved, our economic performance would have been much higher today.

Of course, there are both objective and subjective reasons for this, but I want to remind all members of government, heads of departments that what matters most now is to properly plan capital expenditures in 2020, organize and hold tenders, so that capital expenditure contracts could have been signed and all relevant activities organized by January 1.

In addition, not only budgetary resources should be taken into account here, but also the possibility that additional funds may be created in the same way as this year, and that additional funds should not be re-discussed for weeks, what to spend on that money. That is to say, we need to have ready-made projects on our desktop, with their financial appraisal, so that additional funds can be spent quickly and efficiently as soon as additional funds are available.

So I think yes, of course, it should always be taken into account that any good news brings some tension as well, as it is very important that we do not lose the momentum and mood of those good news. There is only one way: to work and work again, and that is first and foremost for us, the government, and I said, in what direction, and this is going to be the performance evaluation of every minister and how well that work has been done.

Dear Colleagues,

There is another topic I would like to highlight. Yesterday we had a meeting with the representatives of companies engaged in the military-industrial complex and we reached an agreement with them, Mr. Tonoyan, that we will take stock of domestic products manufactured in the military-industrial complex very soon, and we will formulate a 5-year plan for the Armed Forces.

We will work with the sector in 2 directions: the government will set a task to implement purchases from the local producers, provided that local producers show increased efficiency, lower cost-price, and set up a specific roadmap. That is, we need to understand that this must be a two-way process where both the government and the producers have to testify their tactics and strategy to increase efficiency through innovation.

Of course, there were a few other suggestions regarding the formulas for calculating economic profitability, in general.

Mr. Khachatryan, I think that what we have agreed upon the following: considering local producers’ tax obligations, we will proceed to economic feasibility calculations.

I guess that we all realize that there can be no compromise on quality, and this is not even a question. We are formulating this as a recommendation and shall be working to draft monthly reports on where we have come in fulfilling this assignment.

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