S&P Global Ratings reaffirmed Armenia's long-term and short-term foreign and local currency sovereign credit ratings at "BB-/B," maintaining a stable outlook. 

The agency noted that this outlook balances Armenia's strong economic growth prospects and moderate sovereign debt levels. It also acknowledges existing vulnerabilities, such as balance-of-payment issues and heightened geopolitical risks.

Economic Performance: Armenia’s economy is projected to grow by 6.2% in 2024, driven by strong consumption, a resilient tourism sector, and increased government spending. Despite recent slowdowns in Russian capital and labor inflows, the country’s economic outlook remains robust due to significant capital and labor inflows into the ICT sector. S&P forecasts a growth rate of about 5% annually through 2027.

Public Finances: Armenia’s fiscal deficit is expected to be around 4.2% of GDP through 2027. The government has adopted an expansionary fiscal strategy, including increased spending on refugees, infrastructure, and defense. The fiscal deficit has increased due to higher capital expenditures and defense spending.

Debt and Reserves: Public debt net of liquid assets is projected to average 48% of GDP from 2024 to 2027. About 54% of this debt is in foreign currency, which exposes Armenia to exchange rate volatility. Foreign exchange reserves stood at $3.3 billion in June 2024, a decrease from earlier peaks. S&P expects reserves to remain adequate but under some pressure due to higher external financing needs.

Geopolitical Risks: The ongoing conflict with Azerbaijan and tensions with Russia add significant geopolitical uncertainty. Armenia is reviewing its security strategy, including potential alliances and defense posture changes. The country's reliance on Russia for economic and energy resources further complicates its geopolitical situation.

Balance of Payments: Armenia has a historically high current account deficit, expected to widen to 3.0% -5.0% of GDP in the coming years. This deficit is financed through external government borrowing and foreign direct investment.

Inflation and Growth Forecasts: Inflation has eased from its peak but has recently increased slightly. Various institutions forecast Armenia’s economic growth to be between 5.2% and 7.5% in 2024, reflecting a positive economic outlook despite the challenges.

S&P indicated a positive rating action could be considered if Armenia's public finances significantly improve or if geopolitical risks and capital flow pressures are reduced. Conversely, a downgrade could occur if balance of payments pressures worsen or fiscal performance deteriorates significantly.