Fitch Ratings has affirmed Yerevan’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at B+ with stable outlooks.

The rating for the city’s Short-Term Foreign-Currency IDR has been affirmed at ‘B’.

According to Fitch Ratings, Yerevan’s ratings are constrained by those of Armenia (B+/Stable), in particular “the country’s weak institutional framework for local and regional governments”. The ratings also factor in the city’s capital status, satisfactory budgetary performance, supported by steady transfers from the central government, and zero debt.

Fitch expects the city to continue posting satisfactory fiscal performance with a lower single-digit operating margin in 2017-2019 (2016: 1.6%).

“The city’s operating margin decrease is due to negative shocks resulting from the protracted slowdown of Armenia’s economy in 2014-2015. We project a likely margin consolidation at this level. We also expect Yerevan to run close to balanced budget in 2017-2019 in line with historical result (2012-2016: average deficit 0.15%),” the agency informed.

According to Fitch’s base case scenario, the city will continue receiving financial support from the central government in line with its historical track record, as current transfers averaged 74% of the city’s operating revenue in 2012-2016.

The city’s interim capex by end-3Q17 was at 7% of total expenditure. Fitch expects Yerevan to continue low capex trend (about 7%-9% of total spending), to be funded by asset sales and capital transfers from the central government.

The agency noted that Yerevan has maintained its debt-free status since forming a community in 2008, as “statutory provisions of the national legal framework guiding debt or guarantees issuance restrict the city from incurring significant debt”.

“Yerevan is likely to benefit from economic recovery in Armenia. Fitch expects full-year growth of the national economy at about 3.4% yoy in 2017 and 3.6% in 2018. As the country’s capital and most populated city, Yerevan is Armenia’s largest market with a developed services sector. At the same time, Yerevan’s wealth metrics remain relatively modest in the international context as we estimate Armenia’s 2016 GDP per capita at USD3,490,” emphasized Fitch Ratings.