By Mark Dovich
Fitch has affirmed Armenia’s “BB-” sovereign credit rating with a “stable outlook,” citing the country’s “per-capita income and governance indicators that are in line with peers, strong growth prospects, and a robust macroeconomic policy framework.”
At the same time, the global ratings agency flagged that “a wide fiscal deficit relative to peers, relatively weak external finances, high financial sector dollarization, and geopolitical risks” could all threaten Armenia’s creditworthiness.
In a press release last Friday, Fitch forecast Armenia’s economy to grow by 6% this year due to “spill-overs from strong inward migration from Russia, Belarus, Ukraine, and now Nagorno-Karabakh,” as well as impressive showings in the technology and tourism sectors.
Tens of thousands of people relocated to Armenia from Russia after the Kremlin launched its full-scale invasion of Ukraine in February 2022. Tens of thousands more fled to the country last September, when Azerbaijan took control of Nagorno-Karabakh. The U.S.-based watchdog Freedom House said that amounted to ethnic cleansing in a landmark special report last month.
Fitch notably declined to downgrade Armenia’s sovereign credit rating after Azerbaijan’s forceful capture of Nagorno-Karabakh, despite the increased financial strain on the government of accommodating some 100,000 displaced people.
In addition, Fitch said it “does not expect secondary US, UK, or EU sanctions on Armenia, and expects Armenia’s financial sector to comply with sanctions targeting Russia,” despite the fact that “trade links with Russia remain strong.”
Only a small handful of Armenian entities have been blacklisted so far for doing business in Russia, even as the countries maintain a vibrant re-export trade. Armenia’s economy surged by 8.7% last year and 12.6% in 2022, largely on the back of record-breaking trade with Russia.
Fitch last affirmed Armenia’s “BB-” rating in February. That rating is considered speculative-grade, also commonly known as “junk,” and indicates “an elevated vulnerability to default risk.” The agency rates the creditworthiness of both Azerbaijan and Georgia more highly, though still within that “junk” range.
Credit rating agencies like Fitch evaluate a country’s ability to pay back debt and its likelihood of defaulting.
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