Moody's revised its outlook on Armenia to positive from stable and affirmed the B1 long-term issuer and senior unsecured debt ratings, saying improvements in the country's macroeconomic policies should reduce its vulnerability to external shocks.
The rating agency said effective monetary and prudential policies helped the country absorb external setbacks, which was illustrated during the 2014 to 2016 regional economic shock caused by plummeting commodity prices.
"The Armenian dram depreciated the least among peers in the [Commonwealth of Independent States] region by 22% between January 2014 and February 2016, while inflation expectations were anchored, preventing a flight to US dollars," Moody's said. Inflation peaked at 5.8% year on year in March 2015 and averaged 1.6% between 2014 and 2017.
The rating agency also expects the full implementation of mandatory pension contributions in July to help raise domestic savings and reduce further the savings-investment gap, which is the source of Armenia's external vulnerability.
Moody's also cited the country's move in reforming its fiscal framework to reinforce fiscal discipline, saying its constant implementation may result to fiscal strength.
The rating agency expects a reduction of the government's fiscal deficit to 2.6% of GDP in 2018 and 2.5% in 2019, from 4.7% in 2017, and a gradual decline in general government debt to 56.5% of GDP by the end of 2018 and 54.2% by the end of 2019.
