Fitch upgrades Armenia’s outlook to positive following peace talks with Azerbaijan

Fitch Ratings has revised the outlook on Armenia’s long-term foreign-currency (LTFC) issuer default rating (IDR) to Positive from Stable, while affirming the rating at BB-.

The outlook revision reflects Armenia’s higher international reserves and continued solid economic growth, which Fitch says will support fiscal consolidation and medium-term debt stabilization. The US-sponsored peace framework with Azerbaijan “significantly reduces near-term military escalation risks,” Fitch noted, although uncertainties remain regarding its successful conclusion due to upcoming parliamentary elections and a potential constitutional reform referendum.

Fitch highlighted several key drivers influencing the outlook revision.

Armenia and Azerbaijan have signed a joint declaration aimed at achieving a peace agreement, which “significantly reduces near-term military escalation risks.” However, Fitch notes that finalization is still uncertain, as it depends on Armenia amending its constitution to remove references to Karabakh—a step that requires a public referendum, potentially following the June parliamentary elections. Trade with and through Azerbaijan has begun reopening. Relations with Türkiye are also improving, and the Turkish government is reportedly considering reopening its land border with Armenia.

Fitch estimates that Armenia’s 2025 general government (GG) deficit stood at 5.0% of GDP, lower than the budgeted 5.5% but still above the BB median of 3.0%. The reduction reflects lower capital expenditure and interest payments. Armenia’s 2026 budget targets a 4.5% deficit, with reduced defence spending (down 2.1 percentage points to 4.7% of GDP) offset by a 0.5% GDP increase in health spending to fund the rollout of a universal health insurance system. Fitch expects the government to meet the 4.5% deficit target in 2026, though deficits are likely to remain above the authorities’ 3.5% medium-term target from 2027 onwards.

The agency also estimates that general government debt increased to 50.1% of GDP at the end of 2025 and expects a gradual rise in the coming years, approaching the projected BB median of 53.6%, given continued fiscal deficits and anticipated overfinancing.

By Vafa Guliyeva