Armenia Improves Its Position in International Ratings

The Fitch rating agency has reaffirmed the Republic of Armenia's sovereign rating of 'B+' for long-term obligations in both foreign and national currencies, changing the outlook from 'stable' to 'positive'.

The agency's report highlights that the revision of Armenia's sovereign rating outlook is based on the positive dynamics of the economy and high economic growth, influenced by significant inflows of people and capital, over-performance of tax revenues, and a reduction in the debt burden, as well as improvements in the external position of the economy.

Notably, Armenia's strong economic growth, which was estimated at 11.6% in 2022, marks the highest rate in the last 15 years. This high growth has been driven by substantial inflows of migrants and capital. The agency anticipates that a significant portion of these migrants will remain in Armenia for at least two to three years, leading to sustained positive economic developments.

A significant reduction in the budget deficit was also recorded, largely due to a sharp increase in tax revenues. As a result, the budget deficit/GDP ratio for 2022 was 2.2%, compared to 4.6% in 2021. Additionally, government debt decreased by nearly 13 percentage points in 2022, reaching 47.6% of GDP, and is expected to maintain this level in the medium term.

The improvements in the external position, supported by capital inflows and the current account balance, are also viewed positively, contributing to an increase of $880 million in foreign currency reserves. Furthermore, Armenia's net external debt fell by nearly 12 percentage points, amounting to 44.5% of GDP in 2022.

From the perspective of external stability, the agency emphasizes the importance of a new three-year precautionary program with the IMF worth $171 million, which could act as a buffer in the event of negative external shocks. At the same time, the agency notes that Armenia stands out with strong governance indicators, as well as a solid framework for macroeconomic and fiscal policies and a credible commitment to reforms.

Factors contributing to further improvements in Armenia's sovereign rating include the continued decrease in the government debt/GDP ratio in the medium term and the preservation of improvements in the external position and finances due to significant capital inflows.