25.Sep .2021 21:00

Fitch Ratings affirms Armenia's IDR at 'B+' with Stable Outlook

Fitch Ratings affirms Armenia's IDR at 'B+' with Stable Outlook
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Fitch Ratings has affirmed Armenia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+' with a Stable Outlook, the agency said in a statement on Friday, September 24.
Armenia's 'B+' IDRs reflect strong per-capita income, governance and business environment indicators relative to peers, as well as a robust macroeconomic and fiscal policy framework and credible commitment to reform that are underpinned by an IMF programme. Set against these strengths are high public foreign-currency debt, relatively weak external finances, and geopolitical tensions that have the potential to reignite into military conflict.
Prime Minister Nikol Pashinyan's decisive win at the 20 June 2021 snap elections secured a parliamentary majority for his 'Civil Contract' party and should resolve the domestic political crisis that has ensued since the 6 November 2020 Russian-brokered ceasefire agreement with Azerbaijan concluded the 44-day Nagorno-Karabakh war. The election outcome refreshes the government's mandate to pursue key structural reforms and tackle corruption, and is a further endorsement of democratic-based politics as the second elections to be widely acknowledged as free and fair following the 2018 Velvet Revolution.
The new government has emphasised regional peace and commitment to the OSCE Minsk group process to resolve the Nagorno-Karabakh dispute, a marked softening in its tone from last year. Nevertheless, periodic border incidents and minor infractions of the ceasefire agreement are reminders of the possibility for renewed fighting to erupt and the greater reliance on Russia for security in the region.
The agency said public debt is high, with general government debt/GDP jumping 13pp to peak at 67.4% (current 'B' median: 68%) at end-2020, due to the fiscal impact of the pandemic and the Nagorno-Karabakh war's impact on public finances, the fall in GDP and depreciation of the dram. 
Fitch forecasts debt/GDP to fall to 60.2% in 2021 on strong nominal GDP growth (13%), narrowing of the fiscal deficit, and strengthening of the dram. Public debt/GDP should continue its gradual downward trajectory to 55% by 2023, guided by the government's commitment to its debt reduction fiscal rule, which will be reinstated from 2022. Foreign currency debt is high at 81% of total government debt in 2021 ('B' median: 63%), and heightens sensitivity to exchange rate fluctuations.