Armenia: Fitch upgrades Armenia to BB-

CAUCASUS / CENTRAL ASIA - In Brief 31 Jul 2023 by Ivan Tchakarov

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Fitch upgraded Armenia from B+ to BB- citing improved growth prospects and lower public debt levels. The decision was not a surprise for two reasons. First, Armenia was the only country in our CCA coverage where there was some difference in the rating among rating agencies, with Moody's having Armenia at Ba3 while S&P/Fitch rating it a notch lower. This way we now have both Moody's and Fitch rating Armenia similarly and we fully expect S&P to follow suit in issuing an upgrade. More importantly, Armenia has stood out in the region with its stellar growth, which came in at 11.5 percent over the first half of the year. This, along with the strong currency, has also resulted in a much improved public debt trajectory, with public debt dropping from 65.1 percent of GDP in 1Q21 to 48.1 percent of GDP in 1Q23. We are still more constructive on Armenia than consensus views. Earlier in the month we already lifted Armenia's 2023 growth the most in the region from 7.0 percent to 9.0 percent, reflecting very robust contribution from the net exports of goods. Preliminary data for 2Q23 shows only marginal slowdown of GDP growth to 10.9 percent YoY from the 12.1 percent YoY print in 1Q23. We have also argued that the more sizable moderation in the pace of activity registered in June is fully consistent with our new 9.0 GDP forecast for the year. Nevertheless, we continue to stress the obvious risks that could upend Armenia's so far impressive growth performance. The most critical one pertains to the very fraught relationship with Azerbaijan and in our latest CCA Weekly we outlined some of these geopolitical headwinds. In addition, there are risks of secondary sanctions on the country ...