Yerevan/Mediamax/. Moody’s Investors Service lowered its outlook on Armenia’s junk-territory sovereign ratings to negative from stable, pointing to risks to the country’s growth given the anticipated economic slowdown in Europe and Russia.

Moody’s noted that Europe and Russia account for 58% of Armenia\'s export market. In particular, Armenia’s reliance on exports to Russia poses risks to the country’s external position.

Moody’s also said potentially lower commodity prices could further impact the Armenian economy, as exports are concentrated in its mining and metals industries. The firm noted Armenia is now faced with a large current account deficit and has seen its total debt burden more than double in the last three years.

However, Moody’s noted the government is committed to fiscal consolidation, with measures in a draft 2012 budget that are aimed at reducing the general government deficit to 3.1% of GDP next year, as well as efforts to improve the efficiency of tax collection. The impact of such measures will remain unclear for some time and implementation risks to the fiscal consolidation plan are significant, Moody\'s added.

Mediamax reports that in May 2010, Moody’s Agency published the annual report, which said that Armenia’s Ba2 ratings with stable outlook balance its low economic resiliency and high government financial strength.

“Armenia faced significant challenges in 2009. Although it was not directly affected by the global financial crisis as its banking sector is relatively small, it was exposed to the subsequent global downturn, principally a collapse in remittances that led to a near 15% decline in GDP,” said Anthony Thomas, Vice President -- Senior Analyst in Moody’s Sovereign Risk Group.

The report read that the authorities of Armenia responded with a comprehensive and ambitious package of counter-cyclical measures including an easing in fiscal and monetary policies. Moody’s analysts state that although these measures succeeded in limiting the downside in GDP, the result was a severe deterioration in the government’s debt metrics.

At the same time, Moody’s noted that Armenia introduced its policies within an IMF framework which, if followed, should allow the government to reverse the deterioration in its debt metrics.

“But if Armenia fails to implement the IMF agreement in full, the country’s rating could come under pressure,” noted Anthony Thomas.