Armenian companies on verge of bankruptcy

/By AzerNews/

By Sara Rajabova

As a result of the miserable economic situation in Armenia, the country’s companies have been going bankrupt one after another.

The Armenian companies suffer great losses under the harsh economic conditions that have worsened as the corrupt government has been unable to eliminate the consequences of the economic crisis.

The Orange Armenia telecommunication company takes the first place on the list of Armenian companies that have suffered losses of more than one million drams ($ 2.093 ), Armenian media reports referring to Armenia’s State Revenue Committee.

Orange Armenia does not have the scale necessary for generating required investments. The company declared a loss of 43.3 billion drams for the previous year.

The situation for the other companies is also not pleasing as they continue suffer losses.

Gazprom Armenia holds comes in second for the size of its losses with 32 billion drams (about $67 million). It was followed by Nairit having lost 29.1 billion drams (about $61 million), and Rusal Armenal with 18.9 billion (about $40 million) in losses.

The other companies in the list included Electric Networks of Armenia, Armenian Railway Company, Spayka, Glendale Hills, Hrazdan cement, Ararat cement, Armenian Public Television and others.

The companies that are on the verge of the bankruptcy are forced to sell their shares to the international companies in order to avoid being declared bankrupt.

The number of companies in the list that have suffered losses of more than one million drams is a staggering 775. The total amount of damages amounts to about 260 million drams (about $544 million).

As a result of the economic slowdown in Russia, which is Armenia’s biggest trading partner, the economic situation in the country has worsened due to a decline in remittances into the country. Money transfers from Russia to Armenia decreased by 40 percent, which consequently, led to a significant drop in government’s revenues.

As the experts forecast that the cash from Russia will continue decline, one can expect that Yerevan’s revenues will keep falling in the coming months. This consequently leads to the lower economic growth or no growth in the country.

The forecasts of the international financial and rating organizations also show economic decline.

Fitch Ratings reported on July 27 that the government deficit for 2015 is likely to come in at 3.5 percent of GDP, compared with a target of 2.3 percent in the original budget.

The organization said a tax hike and similar measures could lead to an exacerbation of the political situation in the country, such as the recent demonstrations against a hike in electricity costs in the country. It said these measures will likely face strong social and political challenges, as the recent protests against higher consumer electricity charges demonstrate.

Fitch Ratings also highlighted the fact that Armenia's large exposure to Russia increases risks to its growth prospects and balance of payments, and weighs on the rating as a result. Russia is an important source of Armenia's net receipts of workers' remittances (80 percent in 2014) and export revenues (20 percent in 2014).

It also noted that Armenia's external finances are weaker than the median of its 'B' range rating peers. Net external debt to GDP is high (42.6 percent vs. 'B' median of 14.4 percent in 2014) and the current account deficit plus net FDI is huge (-4.6 percent vs. 'B' median of -2.7 percent in 2014).

The organization said one of the reasons for Armenia's miserable economic situation its geopolitical environment, claiming this factor to be a negative constraint on the rating.

The latent conflict with Azerbaijan over the disputed Nagorno-Karabakh region entails the tail risk of escalating into a full-scale conflict, though this scenario is unlikely to occur. No resolution is expected in the short term, the statement said.

Armenia occupied over 20 percent of Azerbaijan's internationally recognized territory, including Nagorno-Karabakh and seven adjacent regions, after laying territorial claims against its South Caucasus neighbor that caused a brutal war in the early 1990s. Long-standing efforts by U.S., Russian and French mediators have been largely fruitless so far.

These factors represent urgent calls for the Armenian government to take decisive measures to pull the country from the economic crisis and further deterioration of the situation in the country. The corrupt regime in Yerevan, unfortunately, seeks to maintain its power rather than finding solutions to its problems.