Fitch Ratings affirmed Armenia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB-’ with a Stable Outlook.

The rating reflects Armenia’s per-capita income and governance indicators aligned with its peers, strong growth prospects, and a solid macroeconomic policy framework. However, challenges include a significant fiscal deficit, relatively weak external finances, high financial sector dollarization, and geopolitical risks.

Economic growth has been bolstered by strong inward migration from countries like Russia, Belarus, Ukraine, and Nagorno-Karabakh. Real GDP grew 8.7% in 2023 and remained robust at 9.2% year-on-year in Q1 2024. Key growth drivers include tourism and ICT, with future contributions expected from the Amulsar gold mine starting in 2025. Fitch projects growth to reach 6% in 2024, 5.5% in 2025, and 5.1% in 2026.

Fiscal expansion is evident as authorities increase spending on refugees, defense, and other capital projects, leading Fitch to forecast a general government deficit of 4.5% of GDP in 2024, up from 1.9% in 2023. This deficit is anticipated to rise to 5.4% in 2025 due to new healthcare expenditures, with a projected moderation to 4.2% by 2026.

Inflation, which ended six months of deflation in May 2024, is expected to rise to 1.3% by the end of the year, reaching 4% by 2026 due to expected dram depreciation. The refinancing rate has been reduced by 75 basis points to 8% since early 2024. However, Fitch believes the loosening cycle has concluded, with high dollarization limiting monetary policy effectiveness.