S&P Global Ratings revised its outlook on Armenia to positive from stable and affirmed 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings.

“The revision of the outlook to positive reflects our view that there is the potential for improvement in regional geopolitical and security dynamics, specifically further progress toward normalizing diplomatic and trade relations between Armenia and Azerbaijan. We also view Armenia's growth prospects as favorable, while higher levels of the Central Bank of Armenia's (CBA's) international reserves and a flexible exchange rate should help mitigate possible unanticipated external shocks.

Progress in negotiations with Azerbaijan could reduce near-term security risks, although the prospect of a durable peace agreement still depends on signing a binding agreement and its effective implementation”, S&P Global Ratings said.

“We forecast Armenia's real GDP will expand by 5.3% this year and 4.8% in 2027. Armenia's growth averaged a high 7.8% in 2022-2025; one of the fastest growth rates among the 143 sovereigns we rate. Softer growth in the medium term reflects our expectations that growth drivers linked to the Russia-related re-exports activity and labor and capital inflows will continue to moderate. 

We expect growth to remain primarily consumption- and private-investment-driven, supported by resilient labor market conditions, improving real incomes amid moderating inflation, and supportive credit conditions, alongside continued investment in construction and services.

Despite growth in Armenia's international reserves, balance-of-payments vulnerabilities persist, reflected in wide current account deficits and a large net external liability position.

Armenia's medium-term fiscal framework reflects a shift toward gradual fiscal consolidation following higher budgetary deficits in 2024-2025. We project the fiscal deficit to average about 3.3% of GDP over 2026-2029. While the 2025 budget targeted a deficit of about 5.5% of GDP, the actual outturn came in at just below 4% of GDP, largely due to the underexecution of planned capital spending. Building on this, the 2026 budget targets a lower deficit of roughly 4.5% of GDP, based on a real economic growth assumption of around 5.5%. 

Armenia's international reserves strengthened materially in 2025, providing an important buffer amid unpredictable external developments. Gross international reserves rose to a record $5.2 billion in January (18% of GDP), up from about $3.3 billion a year earlier. This increase was driven by a combination of government Eurobond issuance and central bank foreign currency purchases, supported by strong financial and capital inflows from abroad. 

These reserve buffers should enable the central bank to mitigate risks emanating from potentially volatile capital inflows to the banking system. 

Price pressures have re-emerged after a period of low inflation, with headline inflation rising to 3.8% in January 2026. This compares with 1.7% a year earlier. Accelerating inflation has been driven by higher food prices and increases in transport and education costs. We expect inflation to ease toward an average of around 3.2% in 2026 as economic activity cools. 

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