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

Fitch Ratings has raised Armenia's sovereign ratings for the issuance of long-term obligations in foreign and national currencies from 'B+' to 'BB-' with a 'stable' outlook, as reported by the Public Relations Service of the Central Bank of Armenia on November 22, 2019.

Additionally, Fitch has upgraded the upper limit for the ratings of long-term bonds issued in foreign and national currencies by one level, setting it at 'BB'. This allows private sector enterprises and financial institutions to receive a rating one level higher (BB) than the country's sovereign rating (BB-) when rated by Fitch.

The sovereign rating for short-term obligations issued in foreign and national currencies has been reaffirmed at 'B'. The decision to raise Armenia's sovereign rating is based on Fitch's assessment that Armenian institutions contributed to a peaceful and smooth political transition and are likely to be strengthened through structural reforms.

The government has reaffirmed its commitment to implement a stable macroeconomic policy and structural reforms, including the fight against corruption and monopolies, as well as strengthening institutions and governance systems.

Despite external instability and internal political shocks during a period of rapid growth, Armenia has maintained macroeconomic and financial stability, with inflation remaining below the Central Bank of Armenia's target of 4%.

Fitch expresses strong confidence in the government's commitment to reduce external debt, planning to bring government debt down to below 50% of GDP by 2023. Fitch also expects that fiscal policy will remain prudent in line with principles enshrined in the fiscal rule.

Dynamic private investment, particularly in consumer growth and the construction sector, has led to GDP growth exceeding earlier expectations, prompting Fitch to raise Armenia's economic growth forecast for 2019 to 6.5% from a previous estimate of 4.6%.

The stable services and industrial sectors, alongside the reopening of the Teghut copper mine, together with increased public investment, will continue to contribute to economic growth, ensuring an average growth rate of 4.7% in 2020-2021.

Fitch forecasts a reduction in the current account deficit in 2019, driven by increased exports of mineral products and a dynamically growing tourism, agriculture, and manufacturing sector.

The availability of external financing, the growth of international reserves, and exchange rate flexibility have mitigated risks related to international liquidity. Risks associated with external financing have also been alleviated by the precautionary Stand-By funding mechanism signed with the IMF in May 2019 and support from official creditors.

The September 2019 issuance of eurobonds by the government and the buyback of 80% of bonds maturing in the following year eliminated short-term refinancing risks.

The banking sector is well capitalized, and loan growth remains high due to the rise in mortgage and consumer loans. The high growth in loans partly reflects a reduction in the informal economy, increased real incomes for households, and a rising appetite for risk among banks in a low-yield environment. The quality of bank assets remains high.

It is noteworthy that on June 5, 2006, Fitch assigned Armenia a 'BB-' sovereign rating, which was upgraded by one level in 2008 and subsequently downgraded twice by one level.

The first downgrade occurred in August 2009 due to the negative impact of the global financial crisis on Armenia's economy. The second downgrade took place in January 2015, attributed to the significant vulnerabilities of Armenia's economy stemming from the economic situation in Russia. Since January 2015, Armenia's sovereign rating has not been subject to change by Fitch.

Countries with 'BB-' sovereign ratings similar to Armenia's as rated by Fitch include Greece, Turkey, Brazil, Jordan, Uzbekistan, Bahrain, the Dominican Republic, Bolivia, and Bangladesh.