Moody's Investors Service has affirmed the Government of Armenia's Ba3 local and foreign currency long-term issuer ratings, as well as the foreign currency senior unsecured ratings. Concurrently, Moody's has changed the outlook to stable from negative.
Moody's projects also real GDP growth to moderate to around 7% in 2023 and 5-6% in 2024, on the expectation that financial and labor flows will ease from the heady pace recorded in 2022.
A slowdown in global growth and tighter financial conditions will also moderate activity in Armenia. Meanwhile, Moody's does not expect a sharp reversal of financial and labor flows back to Russia over at least the next two to three years. Instead, the inflow of people, income and capital is likely to boost levels of economic activity in a structural way.
Moody's says also that the economy maintained strong momentum in 2023. In the near-term, there are risks that demand for goods and services increases faster than supply, leading to a build-up of inflationary pressures.
While headline inflation has declined, nominal wage growth remains at double-digits while services inflation is elevated by historical standards, pointing to such risks. Moody's assumes that Armenia's fiscal and monetary authorities will contain inflationary pressures, should they build up, through appropriate policies.
Over the longer-term, Armenia's growth outlook is highly uncertain. Armenia's growth potential may weaken, if it was unable to reduce its economic linkages with Russia over time. This is because Moody's expects Russia's potential growth to be lower than before the Russia-Ukraine war.
In addition, the labor and capital inflows that Armenia received over the past year may eventually reverse, which would weigh on the country's longer-term economic strength.
Moody's expects the government debt burden to stabilize at around 45% of GDP over the next two to three years, lower than the average of 51.7% recorded over 2017-2019, ARKA reports.
