Fitch: Prolonged escalation of conflict will negatively affect Armenia

Fitch Ratings has downgraded Armenia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to B+ from BB-. The outlook is stable, Report informs.

The scheduled calendar review date for Fitch's sovereign rating on Armenia was Friday 2 October 2020, but Fitch was unable to publish this rating action on that date because of the need to comply with the regulatory requirement to inform the issuer at least a full working day before publication of the credit rating. The delay to publication reflected the need to reschedule the rating committee process following very recent developments in the country that needed to be considered in the issuer's credit profile. These developments centered on the recent large-scale military actions along the Line of Contact in the Nagorno-Karabakh conflict zone.

The sharper than expected economic contraction in the first half of this year and a sizeable downward revision to GDP growth forecasts have put general government debt on a markedly higher trajectory than at previous review in April:

"We now expect government debt to peak at a much higher level (it will increase from 53.5% in 2019 to 63.9% by the end of 2020) and no longer have confidence that it will be placed on a clear downward path over the medium term. We anticipate that state debt will continue to rise to 65.6% of GDP in 2021 (9.6pp above our previous forecast).

"Despite a relatively robust macroeconomic framework, there are also material and growing downside risks to our revised prognosis, for example, should a resurgence of COVID-19 cases result in renewed containment measures, or there is a more prolonged escalation in the Nagorno-Karabakh conflict that negatively impacts the economy. Fitch forecasts that the Armenian economy will contract by 6.2% this year."