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

On July 26, Fitch Ratings affirmed Armenia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at “BB-“ with a Stable Outlook, the Ministry of Finance of Armenia informs Armenian News-NEWS.am.

This rating reflects per-capita income and governance indicators that are in line with peers, strong growth prospects, and a robust macroeconomic policy framework.

According to Fitch's assessment, Armenia’s economic growth continues to benefit from spill-overs from strong inward migration from Russia, Belarus, Ukraine and now Nagorno-Karabakh. 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.

Fitch also referred to the increase in spending on defense and capital projects to meet the needs of forcibly displaced people from Nagorno-Karabakh, as a result of which Fitch expects the general government deficit to widen to 4.5% of GDP in 2024.

According to the agency's forecasts, along with the above factors, 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.

Fitch expects wider deficits will lift general government debt/GDP to 48.7% by end-2024 from 48.1% in 2023, and stabilize at 50.5% by 2026. This is higher than previously projected, but remains below the “BB” median of 55.2%.

Fitch reflected also on Armenia’s existing geopolitical risks, dollarization of its banking system, foreign finances, and inflation.