YEREVAN, December 6./ARKA/. Fitch Ratings expects Yerevan to run a slight surplus before debt variation of 1%-2% of total revenue in 2016-2018, after an average deficit of 1% in 2011-2015. Fitch projects Yerevan city's operating revenue will total AMD78bn in 2016, up 3% yoy.

Fitch Ratings has assigned Armenia’s Yerevan Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of "B+" and a Short-Term Foreign Currency IDR of "B".

The Outlooks on the Long-Term IDRs are Stable.

The ratings reflect Yerevan's status as Armenia's capital, satisfactory budgetary performance, supported by steady transfers from the central government, and a debt-free status.

In its base case scenario, Fitch expects the city to maintain satisfactory fiscal performance with an operating margin of 2%-3% in 2016-2018 (2011-2015: average 7.5%).

Fitch views Armenia's institutional framework for local and regional governments as a constraint on the city's ratings. It has a shorter track record of stable development than many of its international peers. Weak institutions lead to lower predictability of Armenian local and regional governments' budgetary policies, narrow their planning horizon and hampering long-term development plans. The main challenge facing Yerevan is the low predictability of medium- and long-term policies, which are subject to central government decisions.

The city's wealth metrics are low in the international context; Fitch estimates Yerevan's GRP per capita was AMD1.8m in 2015 (USD3,770). The city's unemployment rate is high, averaging at 17.6% in 2011-2015, as measured by ILO-compliant assessment of the national statistics service.

The country's economy grew 3% yoy in 2015, underpinned by strong net exports. Fitch expects Armenia's economy to grow 3.5% in 2016 and 3.6% p.a. in 2017-2018.

The lower than historical margins will be driven by continued adjustment of the city's operating revenue to negative shocks resulting from the protracted slowdown of Armenia's economy in 2014-2015, Fitch Ratings says.

"Capital spending is likely to decrease slightly to about AMD7bn-AMD8bn in 2016-2017 (2015: AMD9bn) before rising to about AMD10bn in 2018. It will likely remain at below 10% of total expenditure, significantly below the average of 22% in 2011-2015, when the city made material infrastructure investment funded by state transfers and donor grants," the agency analysts say. ($1 – AMD 480.74). --0---