FitchRatings 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. Set against these strengths are a wide fiscal deficit relative to peers, relatively weak external finances, high financial sector dollarization, and geopolitical risks,” Fitch said.
“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,” it added.
Fiscal Expansion: Authorities have increased expenditure to meet the needs of the refugee population, as well as on defense and other capex projects (where there has been historical under-execution). Fitch therefore expects the general government deficit to widen to 4.5% of GDP in 2024 (2023: 1.9%; current ‘BB’ median: 2.6%). In 2025, the introduction of a universal healthcare system will lead to additional expenditure pressures, causing the deficit to increase to a projected 5.4% of GDP. We expect the deficit to moderate to 4.2% of GDP in 2026 as refugee-related expenses taper off and new taxes boost revenue.
According to Fitch, the economy emerged from six months of deflation in May 2024, when prices grew by 0.3% yoy and further to 0.8% in June. Fitch expects inflation to rise to 1.3% by year-end (2024 average: 0.3%), and reach the 4% target in 2026, given our expectation of dram depreciation. Authorities have cut the refinancing rate by 75bp to 8% since the start of 2024; in Fitch’s opinion, the loosening cycle has ended. Pass-through of monetary policy is somewhat constrained by relatively high dollarization.
