YEREVAN, March 29, /ARKA/ Fitch Ratings said it has affirmed Armenia’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘B+’ with a Stable Outlook.
According to Fitch Ratings, Armenia’s ‘B+’ IDRs reflect fairly high government and external indebtedness, relatively weak external finances and geopolitical tensions that have the potential to escalate into military conflict.
These are balanced against high income per capita; governance, development and ease of doing business indicators that outperform the ‘B’ rated median; and institutions that have facilitated orderly political transitions and weathered the 2020 pandemic shock and six-week war with Azerbaijan. It also has a robust macroeconomic and fiscal policy framework, and credible commitment to reform, both of which are underpinned by the IMF stand-by arrangement (SBA).
Fitch expects that prime minister Nikol Pashinyan’s ‘My Step’ alliance should be able to maintain a working majority coalition in parliament at the 20 June 2021 snap elections. After Pashinyan signed a Russia-brokered and maintained ceasefire agreement on 9 November 2020 to end the Nagorno-Karabakh conflict, the country has seen a period of heightened protests and political interventions by the military calling for his resignation. Although we expect Pashinyan to retain power, support for his government has diminished since the war and could exacerbate the challenges of implementing structural reforms and tackling corruption.
The effects of Armenia’s defeat in the Nagorno-Karabakh war are likely to persist, with the influx of refugees to Armenia numbering in the tens of thousands (Armenia’s 2019 population: 3 million), and the need to re-establish diplomatic efforts through the previously failed OSCE Minsk Group process. Despite the presence of Russian peacekeeping forces, tensions in Nagorno-Karabakh have the potential to reignite due to the absence of a demilitarised zone. The war has also further entrenched Armenia’s reliance on Russia for security and economic relations.
