On January 24, Fitch Ratings affirmed Armenia's Long-Term Foreign-Currency Issuer Default Rating at 'BB-' with a Stable Outlook.

Fitch noted that Armenia's 'BB-' rating is supported by per-capita income, governance indicators aligned with its peers, stable growth prospects, and a robust macroeconomic framework. However, the rating is constrained by the economy's small size, large fiscal deficits, weak external finances, high financial sector dollarization, and geopolitical risks.

The general government deficit is projected to rise to 5.5% of GDP in 2025, driven by integration costs for 65,000 refugees from Nagorno-Karabakh, increased military expenditures, and the introduction of universal health insurance by 2026. Gross general government debt is expected to increase from 49.7% of GDP in 2024 to 55% by 2026. Despite exposure to currency risks, market risks are mitigated by fixed interest rates and concessional debt.

Fitch also highlighted that moderating growth will impact the economy, with growth estimated at 6% in 2024 but projected to decline to 4.8% in 2025 and 4.5% in 2026, partly due to delays in the Amulsar gold mine opening. Armenia's external balance remains weak, with large current account deficits averaging 4.3% of GDP in 2025-2026, low international reserves, and net external debt at twice the 'BB' median.

Geopolitical risks include strained relations with Russia, potential EU membership, and discussions of leaving the CSTO. However, a complete breakdown in relations with Russia is unlikely due to Armenia's dependence on Russian energy and trade. Fitch cited ongoing negotiations with Azerbaijan for a peace treaty as a potential factor that could unlock trade routes and support long-term growth.