Fitch Ratings has affirmed Armenia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook.
“Armenia’s 'BB-' rating reflects per-capita income and governance indicators that are in line with peers, strong growth prospects, and a robust macroeconomic policy framework,” Fitch said in its
report.
“Set against these strengths are a wide fiscal deficit relative to peers, relatively weak external finances, high financial sector dollarisation, and geopolitical risks.
”In terms of the country’s continued high growth, Fitch said that economic growth continues to benefit from “spill-overs from strong inward migration from Russia, Belarus, Ukraine and now Nagorno-Karabakh.”
“Real GDP grew 8.7% in 2023 and remained strong at 9.2% yoy in 1Q24. The tourism and information and communication technology sectors are expected to be important drivers of growth, while commencement of the Amulsar gold mine's operations from 2025 will be positive for exports and growth. Fitch expects growth to reach 6% in 2024, 5.5% in 2025 and 5.1% in 2026,” the rating agency said.
Armenia is negotiating a peace agreement with Azerbaijan following its complete loss of territorial control over Nagorno-Karabakh in 2023. In Fitch's view, a comprehensive peace agreement will be challenging, owing to Azerbaijan's demands for Armenia to establish a transit corridor through its territory and changes to its constitution, which will be politically difficult to agree to. Our base case does not include an escalation of the conflict, even though Azerbaijani troops continue to have a presence inside Armenian territory, and there have been sporadic exchanges of fire.
Relations with Russia appear to have worsened, with Armenia suspending participation in and budgetary contributions to the Russia-led Collective Security Treaty Organisation, while engaging in military exercises with the US. However, trade links with Russia remain strong, and dependence on Russia for energy security is very high. Fitch does not expect secondary US, UK or EU sanctions on Armenia, and expects Armenia's financial sector to comply with sanctions targeting Russia.
