Fitch has maintained Armenia's economic rating among countries with a "stable outlook"
Armenia in fitch ratings
According to the forecast by the prestigious American rating agency Fitch Ratings, Armenia’s economic growth is projected to be 6% in 2024, 5.5% in 2025, and 5.1% in 2026. Economist Narine Petrosyan believes that the current state of the country’s economy and the significant growth observed at the beginning of the year make this forecast realistic.
In its latest report, Fitch Ratings maintained Armenia’s “BB-” rating, categorizing it among countries with a “stable outlook.”
Fitch rating categories are denoted by letters: “A” is excellent, “B” is good, “C” is poor, and “D” is very poor. Additionally, plus or minus signs indicate intermediate assessments. The more letters in the rating, the higher the evaluation.
Narine Petrosyan, an expert at the Amberd Research Center, believes that improving Armenia’s rating will be challenging amid geopolitical uncertainty, but it is an achievable goal.
“The Fitch report states that the main factors preventing a rating upgrade are the budget deficit, geopolitical risks, and a relatively high level of dollarization. Addressing these three issues could help improve the rating,” says the economist.
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“Fitch ratings assessment reflects reality”
Economist Narine Petrosyan views the “BB-” rating assigned to Armenia as positive. She asserts that it accurately reflects the country’s macroeconomic stability:
“Despite existing geopolitical uncertainties and potential risks, Fitch has maintained the rating assigned to Armenia at the beginning of the year.”
The expert explains that the assessment takes into account various aspects: economic growth, debt, external finances, the banking sector, inflation, and monetary policy.
She identifies the main factors that contributed to maintaining the rating:
- Low and relatively stable inflation.
- Continued economic growth since 2022, which was about 9.2 percent in the first quarter of this year.
“Although economic activity is currently showing a tendency to slow down, it still hovers around 10 percent, providing hope for relatively stable growth,” she emphasizes.
“BB- Rating indicates solvency risks”
The expert warns that the “BB-” rating implies potential solvency risks in the event of economic instability.
“However, the likelihood of such risks arising is quite low. External shocks from the Russia-Ukraine war forced Armenia to reduce its government debt-to-GDP ratio from the dangerous threshold of 60% to 46.7% in 2022, and it is projected to reach 48.1% by the end of 2023. Thus, in terms of approaching the dangerous debt threshold, Armenia remains in a lower risk range.”
The economist believes that the country will not face significant solvency risks in the medium term. Especially since the government plans to keep the debt at a manageable level.
According to the government’s medium-term expenditure program, the debt-to-GDP ratio may peak at 55% in 2027.
To improve the rating, focus on three areas
Narine Petrosyan suggests that to improve the country’s rating, Armenia should address the three areas highlighted in the Fitch Ratings report:
- Budget deficit
- Relatively high level of dollarization
- Geopolitical risks
She explains that according to the government’s program, the budget deficit is projected to slightly increase to 5.5% by 2025 and then decrease to 3.5%:
“Therefore, there is hope that the planned reduction of the deficit by 2027 could lead to an improved rating for Armenia in the future.“
The expert notes that the level of dollarization, which had been high, has been decreasing for some time. If this trend continues, the amount of foreign currency in the market will decrease, which will also contribute to Armenia’s improvement in the Fitch rating.
