YEREVAN, June 21. /ARKA/. It is highly likely that Armenia will experience economic growth this year. The sectors that were hit hardest during 2020 will probably lead the growth in 2021 and 2022, BSTDB President Dmitry Pankin saaid in an exclusive interview with ARKA news agency.
Question – Armenia has taken the Chairmanship of the BSTDB Board of Governors. What are the country’s commitments in this respect and what are the main priority areas for 2021? What has already been done?
Pankinn – Normally, the chair country is hosting the Bank’s Annual Meeting of the Board of Governors and patronizes the associated Business Forum. Unfortunately, this year as the year before, the Annual Meeting will be held online (on 25 June), due to the pandemic restrictions. Should the pandemic situation improve later the year, we will organize our traditional Business Forum under the auspices of the Government of Armenia in autumn.
Question – The pandemic has made an impact on the world economy and individual economies, including Armenia. In early 2020 BSTDB made a very positive assessment of Armenia’s investment climate and economic outlook. How do you see the macroeconomic situation now against the backdrop of the pandemic and the war in Karabakh?
Pankin – Indeed, entering 2020, key macroeconomic indicators for Armenia such as the fiscal balance, public debt levels, and inflation were very solid, while the country had posted three years of robust economic growth. While the underlying investment climate has not deteriorated and we continue to believe Armenia has established and maintains a very good investment climate, the macroeconomic indicators did suffer, primarily due to the pandemic and the war. The decline in GDP in 2020 was around -7.6%, among the biggest drops in the Black Sea Region, and it may take up to the end of 2022 for Armenia to recover to pre-pandemic levels of economic activity. Nevertheless, the country has an excellent track record of responding to crises in appropriate ways and has repeatedly demonstrated its resilience.
Question – What are your forecasts for Armenian economy in 2021, given the positive development in the world in Q1? The Central Bank of Armenia reviewed upwards its previous forecast, after having predicted a slowing down from 2 to 1,4%.
Pankin – Armenian GDP was down 3.3% y/y in 1Q21, given the high base of the previous year, along with the lingering effects of the pandemic. However, we observe that a recovery already started in March 2021. For example, the indicator of economic activity was up 23.2% y/y in April 2021. Double digit growth rates will likely continue for some months, benefitting from the low base of the previous year. This is also reflected in the upgrades to forecasts for Armenian GDP. The World Bank’s Global Economic Prospects published this month, says Armenian GDP will be up 3.4% in 2021, up compared to the previous forecast of 3.1%. However, given that global uncertainties regarding pandemics continue as new modifications of the virus impose further challenges, it is difficult to make concise forecasts. Plus, elections make forecasts even more challenging. So, yes, it is highly likely that Armenia will experience growth this year. We believe that the sectors that were hardest hit during 2020 will probably lead the growth in 2021 and 2022. For example, manufacturing, and certain services, such as transport and tourism. Also, agriculture is probably ready to resume growth.
Question – What are the perspectives for the Black Sea region in 2021? How the new economic realities in member countries may impact the Bank’s portfolio quality?
Pankin – Estimates for the Black Sea Region for 2021 are also optimistic, with all countries expected to post positive GDP growth currently estimated at + 3.3%. Vaccination levels and the ability to re-open economies will determine the rate and extent of recovery. One of the main burdens going forward is that pandemic measures left countries facing rising fiscal deficits and public debts. Sooner or later, rebalancing will be necessary and lead to difficult choices. However, BSTDB countries are not in imminent danger. Overall, our Region’s sovereign credit ratings belatedly reflect resilience. Up to now, the ratings have held up despite expansionary policies and economic recession.
As regards the impact of the pandemic on the Bank’s portfolio, some of our clients directly exposed to areas affected by the crisis, such as travel and transportation, did experience problems that we assisted them to overcome. For example, we agreed to defer loan repayments for Armenian Airports and helped other clients in Turkey and Greece. At the same time, those cases did not significantly affect the quality of our portfolio in general, as most our clients showed resilience and managed to continue their business and respect their obligations. Given a positive economic outlook for the Region, we hope to continue this way.
Question – In March 2020 the Bank announced re-allocating EUR 900 million to primarily help the most affected sectors. Which sectors or programs were financed in Armenia under this plan?
Pankin -The re-allocation of the Bank’s financing was made primarily towards the support for our existing clients, mostly in the SME sector, at the expense of postponing the operations planned in the infrastructure sector. In Armenia, since March 2020 the Bank provided about EUR 45 million of fresh funds to three Armenian partner banks – Armeconombank, Ardshinbank and Ameriabank – in support of SMEs and exporters in the country. For example, through Ardshinbank we reached out to over 40 Armenian SMEs in 2020, including the Ararat Food Factory, a leading food producer of natural juices, jams, bottled tea, which obtained financing to support renovation and working capital; Vega World, a leading electronics retailer, trading companies such as Fab Group LLC, Mega Flex, BD Retail Group, which represent international brands in Armenia.
Question – What is the current BSTDB portfolio in Armenia? In 2020 you said the Bank planned to increase its portfolio up to USD 130-150 million in 4 years. Are these plans still valid amid the pandemic crisis?
Pankin – As of end May 2021, the Bank’s portfolio in Armenia exceeds EUR 110 million invested in 14 operations, mostly for the SME sector support. As I said, the Bank and the Region showed resilience and better results than initially expected against the backdrop of the pandemic crisis. In 2020 the Bank demonstrated 12% portfolio growth, in line with the annual average growth projected in our business strategy for the period of 2019-2022. So, we have good reasons to be optimistic as it comes to the implementation of our plans in the years to come.
Question – In February 2020 BSTDB signed a USD 10 million SME credit line (third line) to Armeconombank and provided another USD 20 million SME line to Ardshinbank. How those operations are developing?
Pankin -Both loans have been fully disbursed and funds channeled to eligible Armenian SMEs in various sectors of national economy. Both operations are developing as expected.
Question – In June 2021 BSTDB extended 5-year EUR 23 million SME loan to Ameriabank bringing its total financing for the sector in Armenia to over USD 100 million. What kind of projects are financed from those facilities? Which sectors are most active in borrowing those funds? Are you considering loan agreements with other Armenian banks? What are the banks and amounts?
Pankin -The loan to Ameriabank is provided to finance eligible SMEs which are the backbone of the Armenian economy. The end beneficiaries of this credit facility are businesses involved in the local production, trade, service, agricultural businesses. We are considering new operations with a number of existing and new financial institutions in Armenia. We shall make those loans public in due course as soon as we sign the respective loan agreements.
Question – On many occasions, BSTDB have assessed Armenian banking system as very stable. As BSTDB has experience with equity investments in banks, do you consider Armenian banks?
Pankin -We do have a few equity investments, but their share in our portfolio is small. Due to the fact that rating agencies assess equity investments as a very high risk, which requires making appropriate provisions, the Bank is not planning to actively develop this business in the Region under the current strategy.
Question -Before the pandemic crisis BSTDB announced plans to issue new Dram bonds in 2020. COVID-19 changed the situation, but do you consider an opportunity to issue a local currency bond in 2021? Any specific plans for amounts and timing?
Pankin – The Bank is developing its financing in the local currencies of member states. In 2017 we were the first MDB to issue a Dram bond in Armenia. Bond issuance is one of the ways to raise funds in the local currency, but there are other ways as well. At the moment we do not have a specific decision on issuing a local currency bond in Armenia.
Question – After the Karabakh war there are discussions about unblocking road communications. How do you assess the perspectives and consequences of such developments for the Armenian market and what risks and opportunities do you see here?
Pankin – As a regional development bank, we strive to support regional cooperation. For us opening borders, elimination of barriers to trade and movements, and improving infrastructure among member states is something beneficial for all our members and the region in general. The potential opening of communication and transport roads would have a strong impact on investment and feed growth in a range of sectors from transportation and infrastructure to real estate. Moreover, the opening of neighboring markets would boost exports directly and indirectly by offering new markets and lowering the cost of export logistics. Given our regional development mandate and shareholder structure, the Bank is well placed and willing to promote and participate in such projects. -0-