YEREVAN, November 25. /ARKA/. Fitch Ratings said in a latest report it has greater confidence in the Armenian government's commitment to put debt on a downward trajectory, as reflected by the adoption of a revised fiscal rule in 2018 aimed at bringing central government debt to below 50% of GDP by 2023.

'We forecast gross general government debt (GGGD) to decrease to 51.2% of GDP in 2019, and 48.4% in 2021, from a peak of 58.9% in 2017, supported by a prudent fiscal policy and low effective interest rates. Debt is exposed to exchange rate risk with 82% of government debt being foreign currency-denominated, versus a 'BB' median of 55.6%,' it said.

Fitch expects fiscal policy to remain prudent in line with the principles underpinning the updated fiscal rule. The fiscal deficit is on track to be better than budgeted at a projected 1% of GDP in 2019, versus 2.2% in the 2019 State Budget and well below the current 'BB' median of 3%. Improved tax efficiency and strong nominal economic growth will lift revenues by a forecast 1pp to 24.1% of GDP, while capex under-execution will contain expenditure growth.

The fiscal deficit will likely widen to 2.2% in 2020 and 2.1% in 2021 as the Medium-Term Expenditure Framework entails a 2.2% of GDP increase in capex (to 5% of GDP), in line with the objective of shifting the structure of spending towards a more growth-friendly composition.

The tax reform adopted in June 2019 provides for the introduction of flat income tax rates and lower corporate tax. Revenue measures, including an increase in excise taxes and gambling and financial sector licence fees and removal of tax exemptions will compensate for the estimated impact of about 1% of GDP annual revenue losses in the near-term. -0-