Moody’s 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.
The decision to change the outlook to stable reflects Moody’s assessment that risks to Armenia’s credit profile are balanced, compared to Moody’s last review in March 2022 where risks were assessed to be skewed to the downside. Armenia’s economic and fiscal metrics have improved markedly over the past year amid a surge in income, capital and labor from Russia, part of which Moody’s expects to be sustained.
Moody’s expects Armenia’s economic growth to remain robust over the next few years, even as it moderates towards trend. The rating agency also expects Armenia’s fiscal metrics to stabilize at around the current levels for the next few years, with the debt burden at lower levels than pre-pandemic, making for higher fiscal strength. However, improvements to the country’s economic and fiscal profile are counterbalanced against higher geopolitical risks.
The affirmation of the Ba3 ratings balances Armenia’s robust growth potential and moderately high institutions and governance strength, against its relatively small and middle-income economy, which constrains its capacity to absorb shocks. Armenia also faces elevated geopolitical risks, which weighs on the sovereign rating.
Armenia’s local and foreign currency country ceilings remain unchanged at Baa2 and Ba1, respectively. The four-notch gap between the local currency ceiling and the sovereign rating balances the government’s small footprint in the economy and strong institutions against elevated geopolitical tensions with neighboring countries and its moderate current account deficits in most years that expose the economy to external shocks. The two-notch gap between the foreign currency ceiling and local currency ceiling incorporates Moody’s assessment of Armenia’s moderate policy effectiveness and an open capital account, indicating low transfer and convertibility risks even in times of stress.