Fitch Ratings Upgrades Armenia's Rating from 'B+' to 'BB-'

Fitch Ratings has revised Armenia's long-term foreign-currency issuer default rating (IDR) from 'B+' to 'BB-' with a stable outlook. The information was published by the Fitch Ratings international rating agency.

According to the report, the improvement in the rating has been significantly supported by impressive economic growth, stabilization of public debt, and its low level. “Positive contributions have also come from fiscal budgetary stability and improvements in the external trade balance,” the publication states.

According to Fitch Ratings, after the downgrade in 2020, Armenia has been recovering its indicators in recent years, and it is expected that this positive trend will continue due to the influx of migrants, which number between 50,000 and 65,000 since the start of the Russian-Ukrainian war in 2022 (from Russia, Ukraine, and Belarus).

“This factor contributed to a 12.6% economic growth in 2022, and it is expected that the economy will grow by 7.2% in 2023, 5.9% in 2024, and 4.5% in 2025,” the Fitch Ratings report outlines.

Fitch Ratings also notes that the prospects for exports of goods and services in Armenia remain positive despite the strengthening of the Armenian dram, growth in tourism, and re-exports to Russia. The agency anticipates that per capita income (at market exchange rate) will almost double by 2025 compared to the level of 2021.

Regarding Armenia's public debt, Fitch Ratings expects stabilization around 44.6% for the years 2023-2025, which is lower than the 53.7% in 2019 and the current 54.1% levels. The international rating agency has also considered geopolitical risks in its analysis.

“Geopolitical risks posed by Azerbaijan have increased since the beginning of the year. As of July, Azerbaijan has continued the blockade of the Lachin corridor for seven months, and there have been several deadly military clashes at the border. Negotiations between the two countries regarding peace continue, but in our opinion, they are unlikely to lead to a stable peace agreement in the absence of territorial clarifications. All of this will have macroeconomic repercussions for Armenia,” the publication states.

Concerning the banking sector in Armenia, the agency notes that it has favorable profitability at 18% of equity, with good asset quality and capitalization. The level of dollarization of deposits has remained stable, standing at 52.3% as of May 2023, while loan dollarization has slightly decreased to 34.8% as of May.

In the real estate market, Fitch Ratings has identified signs of what is called overheating, as residential real estate prices have increased by an average of 10% year-on-year, primarily due to increased demand.