Fitch affirms Armenia's sovereign ‘BB-’ rating, with stable outlook

Fitch Ratings has affirmed Armenia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook, Fitch noted in a recent rating action commentary. The latter continues as follows, in particular. 

Armenia's 'BB-' rating reflects per-capita income, governance and business environment indicators that are in line with peers, as well as a robust macroeconomic and fiscal policy framework, with established access to international creditors, anchored by IMF support. Set against these strengths are a high (albeit declining) share of foreign-currency denominated public debt, relatively weak external finances, and high financial sector dollarisation.

Armenia recorded a second successive year of strong economic growth, with real GDP growing by an estimated 7.4% (2022: 12.6%), aided by the lingering effects of migration from Russia which has boosted consumption, and the net influx of an estimated 110,000 refugees from Nagorno-Karabakh (NK). In Fitch's view, the durable addition to the labour force and increase in productivity through expansion of highly productive sectors such as information and communication technology is likely to increase potential growth.

Fitch expects growth of 6% in 2024, aided by strong personal consumption and greater government spending and investment, before moderating to 4.9% in 2025, above the projected 'BB median of 3.7%.

Armenia will sharply expand fiscal spending in 2024 in order to integrate the large refugee influx from NK. Authorities have allocated about 1.5pp of GDP (including 1pp from the reserve fund) for this purpose in 2024 (2023: 0.7%). Despite some permanent revenue-raising measures from 2024, including higher excise taxes on tobacco and alcohol products, revised royalty rates for mining, and new taxes on the gaming sector, as well as continued strong nominal GDP growth, the fiscal deficit will temporarily widen to 4.5% in 2024 (current 'BB' median: 2.8%), before moderating to 2.9% in 2025.

General government debt (GGD) amounted to an estimated 48.2% of GDP at end-2023 ('BB' median: 52%). Authorities bought back USD186.8 million of a USD313.2 million Eurobond maturing in 2025, given the favourable budget performance and cash reserves. The assumption of part of the debt of the liquidated political entity of the Republic of NK increased GGD by 2.2pp of GDP in 2023. Fitch expects debt to stabilise at 49.4% of GDP on average in 2024-25.