Fitch Ratings has affirmed Armenia’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘BB’. The Outlook on the Long-term IDRs is Stable. At the same time, Fitch has affirmed the Short-term foreign currency IDR at ‘B’ and Country Ceiling at ‘BB’.

The rating affirmation reflects the fact that Armenia is gradually reducing its fiscal and external imbalances, says the statement posted on Fitch Ratings website.

“The government narrowed the fiscal deficit to 2.8% of GDP in 2011, from 5% of GDP in 2010, through tax collection improvements, revenue surprises and spending restraint. The fiscal deficit is converging on the medium term target of 2% of GDP, although not all supporting measures have been spelled out. This would allow public debt to stabilise at around 45% of GDP. However, this ratio is unusually sensitive to exchange rate movements, given that 84% of public debt is in foreign currency, mainly from multilateral lenders. External and fiscal sustainability are therefore closely linked.

Real GDP grew 4.6% in 2011, driven by consumption and exports, and a rebound in agriculture. Fitch expects growth of around 4% in 2012-14, with risks to the upside in 2012. Mining production could outperform, but exposure to metals prices and the Russian economy are sources of vulnerability. Improvements in the investment climate would lead to more rapid growth in the medium-term.”

The statement said that political unrest triggered by a disputed presidential election in February 2013 and tensions over Nagorno-Karabakh could lead to negative rating action.