Exclusive interview of Andrew Colquhoun, Director, Emerging Europe Sovereigns, Fitch Ratings, to ARKA news agency.

ARKA – What are the exact reasons behind the decision to downgrade Armenia’s rating and what are the possible consequences of this move, particularly, in the context of credit-worthiness?

Andrew Colquhoun - The downgrade reflects Fitch's view that the severe impact of the economic and financial crisis on Armenia has damaged the country's medium-term prospects and fundamental credit-worthiness. Fitch anticipates that Armenia's public and external financing needs will remain high as the government and current-account deficits will take time to narrow, while the debt being contracted to finance anti-crisis measures will need to be repaid. The Stable Outlook is based partly on the large amount of financial support Armenia has received from international partners including the IMF and Russia, which in Fitch's judgment should head off the risk of an intensification of the crisis in the near term.

АRКА – How could you assess the macroeconomic situation in Armenia?

Andrew Colquhoun - Fitch expects Armenia's economy will contract by about 15% in 2009, which would be the third-worst outcome for any country we rate. The economy has been hit hard by a sharp drop in remittance inflows and by a stop to bank credit growth, while the weak global economy has also affected foreign direct investment and exports. Fitch projects a modest recovery in 2010 with growth of 2%, but Armenia's prospects of course depend on what happens in the region (particularly Russia) and the world.

АRКА – Do you think Fitch Ratings may revise its rating and outlook for Armenia’s economic decline and the ratings of commercial banks before the end of the year?

Andrew Colquhoun - All our ratings are continually subject to review if events justify it. Intensified stress in the external finances and/or the financial system could trigger a further downgrade. A breakdown in the policy framework would also be negative for the ratings, although we do not expect this to happen. On the other hand, evidence that Armenia was making a sustainable economic recovery with narrowing current account and government budget deficits could put upwards pressure on the ratings, although probably not this year.

АRКА – How would assess the efficiency of Armenian government’s anti-crisis program? Do you think the government’s performance needs to be changed and what are the best measures to mitigate the negative impact of the crisis and help the country out of it as quick as possible?

Andrew Colquhoun - Fitch regards the quality of economic policy management by Armenia's authorities as strength at the rating level. The authorities demonstrated an impressive degree of flexibility when the crisis broke. Effective implementation of Armenia's IMF-backed anti-crisis program is a central sovereign rating support, in Fitch's view. АRКА – What are your forecasts about future volume of money transfers to Armenia and what is their impact on the economy?

Andrew Colquhoun - We do not separately forecast remittance flows, but we expect total net transfer receipts roughly to halve in 2009 on 2008. According to the IMF's data summary, private transfers were USD111m in Q109, against USD158m in Q108. Lower remittances will depress consumption and investment, particularly construction, in Armenia. What happens to Armenians working in other countries - whether they lose their jobs and come home or find new jobs - is a major source of uncertainty for Armenia's outlook.  -0-