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Economic reforms put Armenia on radar of yield-hungry investors

Armenia’s economy is growing faster than oil-rich Azerbaijan next door, bolstering investors’ willingness to lend to the impoverished, landlocked nation of three million people, authors Nvard Hovhannisyan, Margarita Antidze and Karin Strohecker write in an article published by Nasdaq.

Nikol Pashinyan’s government has adopted a reform programme that aims to strengthen Armenia’s institutions and the rule of law, improve the business environment and clamp down on corruption.

It plans to increase the share of investment to gross domestic product (GDP) to 23-25% in the next four years from around 20% now and to raise the share of exports to 43-45% of GDP from 37%.

According to the article, when Armenia opened books for a Eurobond two months ago, demand was four times bigger than the offering, highlighting the new-found appeal of the tiny ex-Soviet republic among investors hungry for yield in a world of negative interest rates,

“Yerevan sold $500 million of 10-year Eurobonds in September, drawing demand of more than $2 billion in its third foray into international markets. It also bought back part of its inaugural 2013 dollar-bond due in 2020 in the September sale,” authors remind.

Armenia’s 2025 bonds are yielding 3.9% – a touch above Azerbaijan’s and Uzbekistan’s 2024 bonds at 3.3% and 3.5% respectively. Returns on Armenia’s bonds in the JPMorgan emerging bonds benchmark has risen nearly 14% year-to-date compared to a 9.4% rise for Georgia.

“Armenian bonds outperformed many of their regional peers this year, which is a sign that investors who bought them clearly trust ongoing reforms,” Igor Rapokhin, fixed income strategist at VTB Capital, told Reuters.

Economic growth in Armenia picked up to 6.5% in year-on-year terms in the second quarter of 2019. This week the central bank raised its GDP growth forecast for this year to 6.9-7.1% from 4.9% due to the strength of both manufacturing and services.

Next year Armenia will cut corporate tax to 18% from 20%, introduce a flat-rate income tax of 23% and will hike tobacco and alcohol duties. Private firms with a turnover of less than $50,000 a year will benefit from zero taxes.

Economic growth is expected to slow in 2020 as Armenia needs more structural reforms to become more competitive, officials and experts said.

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