“Sanctions against Russia contributed to growth of Armenian economy” – Fitch Ratings
Fitch ratings on the Armenian economy
The rating agency Fitch Ratings raised Armenia’s index from B+ to BB-, that is, ranked it among the countries “with a stable outlook”. This is the first positive change in this rating since 2020.
Fitch rating categories are designated by letters: “A” – excellent, “B” – good, “C” – bad, “D” – very bad. In addition to letters, the rating includes the signs “+” or “-“. They indicate an intermediate assessment. The more letters in the rating, the higher the score.
The change in the rating is assessed as a consequence of the high economic indicators recorded in Armenia last year. At the same time, the agency linked this revival in the economy with the war in Ukraine and sanctions against Russia. It is for this reason that Fitch Ratings believes that growth rates will decline from year to year.
According to economist Hrant Mikayelyan, the country’s rating improved not at all because of the successful work of the government. He agrees with the agency’s experts that economic growth in Armenia is “indirectly linked” to the ongoing war in Ukraine.
“Strong dependence on the Russian market”
Fitch Ratings experts identified the main factors contributing to the stability of Armenia’s rating:
- stabilization of public debt and the fiscal sector,
- improvement of the foreign trade balance.
However, the authors of the report see certain risks in the field of foreign trade, in particular “strong dependence on the Russian market.”
“Between January and May 2023, Russia accounted for 49 percent of exports from Armenia and 25 percent of imports to the country,” the report says.
According to Fitch, the main factor that contributed to economic growth in Armenia is the massive relocation of citizens of three post-Soviet countries – Russia, Ukraine and Belarus – after the start of the war:
“50-65 thousand immigrants have settled in Armenia, which is more than two percent of the country’s population.”
The agency’s experts emphasize that the sanctions imposed against Russia contributed to the intensification of economic processes in Armenia:
“Although in the short term, Armenia will benefit from a sharp increase in re-exports to Russia. The fact is that, as a result of the imposition of sanctions, other trade routes leading to Russia were closed.”
According to the forecast of the rating company, economic growth in Armenia will continue in the near future, but its pace will decrease every year:
“It is expected that in 2023 economic growth in Armenia will be 7.2% instead of last year’s 12.6%. In 2024, economic growth will be 5.9%, and in 2025 – 4.5%.”
“Risks emanating from Azerbaijan have increased”
The authors of the report also touched upon the “growing geopolitical risks” that Armenia faces. According to Fitch, the risks emanating from Azerbaijan have increased since the beginning of the year:
“As of July, the blockade of the Lachin corridor in the disputed region, Nagorno-Karabakh, has been ongoing for seven months. Many clashes, including fatal ones, have been recorded on the border between Armenia and Azerbaijan.”
The rating company also spoke about the Armenian-Azerbaijani settlement process. According to her forecast, the talks “are unlikely to lead to a long-term agreement.” The signing of a peace treaty in Fitch is considered unlikely “without territorial adjustments”, emphasizing that these “adjustments for Armenia are difficult to accept from a political point of view.”
Agency experts do not exclude the possibility of resumption of hostilities, but suggest that they will be limited to the territory of NK:
“In this case, the large-scale macroeconomic consequences for Armenia will also be limited.”
A comment
According to economist and political scientist Hrant Mikayelyan, Armenia’s economic performance improved amid the Ukrainian war.
“The growth of the economy has only a negative relation to the work of this government. In recent years, especially in 2018-2020, government activities have contributed to the economic downturn,” he said.
Alen Simonyan, Speaker of the Armenian Parliament, also touched upon the topic. In particular, he presented statistical data on economic growth and inflation in Armenia, Azerbaijan and Georgia. According to the graph, which he published on his Facebook page, in January-June in 2023, the highest economic growth in the region was recorded in Armenia – 11.4%.
“If we can record such data in such a tense situation, imagine what the numbers would be if there was peace in our region now,” Simonyan wrote.
However, Mikaelyan declared the data published by the speaker to be “false”:
“Firstly, when calculating economic growth, one should take into account the economic losses in Nagorno-Karabakh, which are huge. Let the losses in Artsakh be subtracted from this increase, then they will say.”
Commenting on the risks indicated in the report of the rating agency, in particular, regarding the low probability of signing a peace treaty between Armenia and Azerbaijan, Mikaelyan stated:
“Pashinyan himself does not believe in the prospect of a long-term agreement, but he is fulfilling the role assigned to him.”
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Fitch Ratings on the Armenian Economy
