Yerevan/Mediamax/.  Fitch Ratings international rating agency has affirmed Armenia\'s Long-term foreign and local currency Issuer Default Ratings (IDR) at \'BB-\' level.  The Outlook on the Long-term IDRs is Stable.

At the same time, Fitch has affirmed the Short-term local currency IDR at \'B\' and Country Ceiling at \'BB\' on September 1, Mediamax reports quoting Fitch

\"The affirmation of Armenia\'s ratings reflects the fact that the authorities are reducing fiscal and external imbalances in line with their IMF-backed economic policy program,\" says Charles Seville, Director in Fitch\'s Sovereign group, adding that the Armenian economy is vulnerable to external shocks as the government debt and gross external debt are materially higher than they were before the 2008-2009 crisis.

Fitch expects the government to reduce the fiscal deficit to 3.9% of GDP in 2011. Withdrawing fiscal stimulus, the government narrowed the deficit to 5% of GDP in 2010. Consolidation plans rely on a mixture of restraining spending and increasing tax collection - a perennial challenge. The government is targeting further reduction to 3.2% of GDP in 2012, an election year.

Fitch also notes that the current account deficit (CAD) has narrowed in 2010-2011, driven by a revival in exports. This trend is expected to continue in 2012-2013. A forecast deficit of 12% of GDP in 2011 will be financed by external borrowing and FDI of around 6% of GDP.

Fitch forecasts real GDP growth of 4%-5% in 2011-2013, close to medium-term potential growth. According to Charles Seville, the CB is currently reducing dollarization and strengthens the role of Armenian dram.

Fitch notes that emerging from the 2009 recession without requiring solvency support the small, well-capitalized Armenian financial sector does not pose a major risk to sovereign creditworthiness. Write-offs have reduced non-performing loans to 3% of assets from a 2009 peak of over 10%. CBA is tightening regulation and encouraging local currency lending.

\'\'Pressure on reserves or the dram - following a global slowdown or shock to Russian growth - would weaken the external balance sheet and could lead to negative rating action. Armenia\'s ability to absorb further external shocks has been weakened by the crisis, which pushed up government debt to 40% of GDP (in line with the \'BB\' median) and GXD. Renewed domestic or external (surrounding Nagorno-Karabakh) political tension could also lead to negative rating action\'\', notes Fitch.

The agency also notes that if Armenia follows through with fiscal reforms and narrow the twin deficits this would put upward pressure on the ratings. A sustained reduction in dollarization would also be positive.