Fitch Upgrades Armenia’s Rating to ‘BB-‘. Outlook is Stable

NEW YORK — Fitch Ratings has upgraded Armenia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘BB-‘ from ‘B+’. The Outlook is Stable.

Armenia has had a strong rebound from successive shocks in recent years since its downgrade in 2020, and Fitch expects this dynamism to continue in light of an extraordinary inflow of migrants. Since the start of the Ukraine conflict in 2022, an estimated 50,000-65,000 immigrants (equivalent to 2.2% of Armenia’s pre-conflict population) from Russia, Ukraine and Belarus have settled in the country. This supported strong growth of 12.6% in 2022, and Fitch expects the economy to grow by 7.2% in 2023, 5.9% in 2024 and 4.5% in 2025.

According to the report, consumption will remain solid while the outlook for goods-and-services exports is also positive despite a strong appreciation of the Armenian dram, mainly due to a resurgence in tourism and re-exports to Russia. If current economic trends continue, Armenia’s already favorable medium-term potential growth (estimated at 4.5%) could receive a further boost from expansion of the labor force and improvements in productivity. Fitch expects income per capita (at market exchange rates) to nearly double from 2021 levels by 2025.

Armenia’s ‘BB-‘ ratings are supported by a robust macroeconomic and fiscal policy framework, and credible commitment to structural reforms, and favorable per capita GDP. These factors are balanced against a high share of foreign-currency-denominated public debt, and relatively high (albeit reducing) financial dollarisation. Governance scores are slightly below the ‘BB’ median, and capture heightened geopolitical risks emanating from tensions with Azerbaijan.

Armenia benefits from strong support and technical assistance from a range of multilateral and bilateral creditors. As of May 2023, an estimated 78% of external public debt was owed to official lenders, offering favorable financing conditions. Armenia is also the beneficiary of a 36-month USD172 million stand-by arrangement with the IMF, although authorities are currently treating this as precautionary.

The Armenian banking sector has favorable profitability (return on equity of 18%), asset quality (non-performing loan ratio of 2.6%) and capitalization (Tier 1 capital ratio of 18.7% as of May). Deposit dollarisation levels have been stable, at 52.3% as of May 2023, while loan dollarization declined slightly to 34.8% as of May.

Armenia has an ESG Relevance Score (RS) of ‘5’ & ‘5[+]’ respectively for both Political Stability and Rights and for the Rule of Law, Institutional and Regulatory Quality and Control of Corruption.