S&P Global Ratings: Armenia's credit profile benefits from election outcome while geopolitical risks remain

Civil Contract's renewed parliamentary majority in Armenia should support political and policy continuity and prove broadly positive for its sovereign credit quality, S&P Global Ratings agency said.

“S&P Global Ratings considers the result to be broadly supportive of Armenia’s credit quality because it bolsters policy continuity and could strengthen the government’s ability to advance peace negotiations with Azerbaijan. However, Armenia’s efforts to deepen engagement with Western partners will continue to prove difficult, given its significant economic and energy ties with Russia”, the agency said.

“The election result should support policy continuity and strengthen the government’s ability to implement its agenda. This includes closer engagement with Western partners, structural reforms aimed at improving the business environment, and fiscal consolidation under the medium-term expenditure framework, which should help stabilize public finances and facilitate a gradual decline in debt levels. The successful implementation of these policies should enhance Armenia’s regulatory and business environment, attract investment, and drive growth, thereby strengthening the country’s macroeconomic fundamentals.

We view regional normalization as one of the most significant potential implications of the election outcome because it could reduce geopolitical risk, support investment and trade, and strengthen Armenia’s medium-term growth prospects.

Improved relations could also facilitate longer-term trade and transport connectivity, including potential links through Türkiye. However, implementation risks remain--including renewed border tensions, which could impede negotiations, and the requirement for politically sensitive constitutional amendments, which may be needed to finalize or sustain a settlement.

While Armenia continues to deepen engagement with Western partners and pursue closer ties with the EU, the country's strategic shift is impeded by its deep integration with Russia. Armenia remains heavily reliant on Russia through trade, remittances, tourism, energy supplies, and its membership in the Eurasian Economic Union.

Russia has recently restricted imports of certain Armenian goods and raised concerns regarding Armenia’s increasing engagement with Western partners, highlighting the challenges Armenia faces in balancing these closer ties against continued economic integration with Russia. Any further deterioration in relations with Moscow could weigh on growth, external inflows, trade access, and energy security, potentially straining Armenia’s external metrics.

While we expect Armenia to continue diversifying its external partnerships, progress is likely to remain gradual given the country’s deep economic links with Russia”, S&P Global Ratings said.