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

Fitch’s report sayss in particular:

Armenia's 'BB-' rating reflects per-capita income, governance and business environment indicators that are in line with peers, as well as a robust macroeconomic and fiscal policy framework, with established access to international creditors, anchored by IMF support. Set against these strengths are a high (albeit declining) share of foreign-currency denominated public debt, relatively weak external finances, and high financial sector dollarisation.

Armenia recorded a second successive year of strong economic growth, with real GDP growing by an estimated 7.4% (2022: 12.6%), aided by the lingering effects of migration from Russia which has boosted consumption, and the net influx of an estimated 110,000 refugees from Nagorno-Karabakh (NK). In Fitch's view, the durable addition to the labour force and increase in productivity through expansion of highly productive sectors such as information and communication technology is likely to increase potential growth.

Fitch expects growth of 6% in 2024, aided by strong personal consumption and greater government spending and investment, before moderating to 4.9% in 2025, above the projected 'BB median of 3.7%.

Armenia's economy is highly dependent on Russia for trade and energy, and Fitch does not expect meaningful diversification away from Russia in the near term. However, relations with Russia are strained following its perceived failure to implement peacekeeping pledges in NK. Armenia continues to implement Western sanctions targeted at Russian entities within its banking sector. Nevertheless, goods exports to Russia increased by nearly 300% since 2021, and Russia accounted for 51% of exports and 30% of imports in 1Q-3Q23.

There are signs of overheating in the residential property market, with the IMF estimating prices to be overvalued by up to 25%, owing in part to the heightened demand from the population surge. However, Fitch sees risks of a disorderly correction as relatively low, and any spillover on the broader economy will likely be limited, given strong household and corporate balance sheets.