NEW YORK — Standard & Poor’s credit rating agency has upgraded Armenia’s ranking from ‘BB-‘ From ‘B+’ ‘ and affirmed its short-term foreign and local currency sovereign credit ratings at ‘B’. The outlook is stable.

The stable outlook balances Armenia’s strong economic growth prospects and improved fiscal balance sheet against its moderately weak external position and elevated geopolitical risks.

According to the agency, the upgrade reflects the improvements in Armenia’s GDP per capita and fiscal performance. The country’s close geographic, economic, and cultural ties with Russia have positioned it as one of the preferred destinations for Russian individuals and businesses seeking refuge from their home country’s economic and political stresses. As a result, migrant and capital inflows have propelled economic growth, with real GDP in Armenia increasing by 12.6% in 2022, and have narrowed Armenia’s persistent fiscal and current account deficits,” S&P says.

According to the agency, last year, spillovers from the Russia-Ukraine conflict helped Armenia’s economy to expand significantly by 12.6%. This surge is primarily attributed to inward migration from Russia, which boosted the economy through various channels.

A substantial portion of migrants from Russia are skilled and young IT professionals. As such, the influx of skilled labor, coupled with the establishment of over 1,000 foreign-owned companies, has contributed significantly to the growth of sectors such as IT, which expanded by 51% in 2022 (the country’s most productive sector).

‘Significant financial inflows, particularly through money transfers from Russia, have also benefited Armenia’s economy. Gross inflows of money transfers from Russia equated to 18.4% of Armenia’s GDP in 2022, up from 6.2% in 2021. However, these transfers have begun to stabilize in recent months, which we expect to continue given that immigration flows have dissipated.

Migration from Russia has also boosted Armenia’s catering, real estate, and transportation sectors. In 2022, Armenia received 1.67 million tourists, though this is still 14% below 2019 levels. That said, tourism remains strong, with a 79% increase in arrivals in the first quarter of 2023, compared with the same period last year. Despite the recent appreciation of the Armenian dram against the U.S. dollar reducing tourists’ purchasing power, we expect tourism levels to remain robust.’

Financial inflows also resulted in a 22% appreciation of the Armenian dram against the U.S. dollar in 2022. This substantial currency appreciation has helped to shrink the government debt stock in U.S. dollar terms.

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