S&P Keeps Armenia’s Credit Rating at ‘BB-’ With Positive Outlook, Possible Upgrade Ahead

S&P Global Ratings has kept Armenia’s sovereign credit rating at “BB-” with a positive outlook, leaving the door open to an upgrade as the country builds record foreign currency reserves and seeks to reduce geopolitical risks through a peace deal with Azerbaijan.

The agency affirmed Armenia’s long-term foreign and local currency ratings at “BB-” and its short-term ratings at “B” in an assessment published Aug. 21. S&P said an upgrade could follow if Armenia continues to strengthen its external finances and makes further progress toward a more stable regional security environment.

Foreign currency reserves have become one of the strongest parts of that picture. Armenia’s reserves reached a record $6.9 billion in June, up about 46% from a year earlier, giving the country a larger cushion against economic and geopolitical shocks.

S&P attributed the increase to government Eurobond issuance, foreign currency purchases by the Central Bank and strong capital and financial inflows.

Despite the improvement, Armenia remains exposed to security risks and external economic pressures. S&P pointed to balance-of-payments vulnerabilities, moderate income levels and an evolving institutional environment as constraints on the rating. Those weaknesses are partly offset by what the agency described as prudent economic policies, solid growth prospects and manageable government debt.

S&P expects Prime Minister Nikol Pashinyan’s government to continue its economic and political agenda following the June 7 parliamentary election, when his Civil Contract party won about half the vote and retained its majority in parliament.

The agency expects Yerevan to continue structural reforms and efforts to narrow the budget deficit while strengthening economic ties with Western partners. It also expects the government to pursue a better business environment and closer trade and investment links with the European Union.

The election could also give Pashinyan’s government more room to advance negotiations with Azerbaijan, which S&P views as an important factor in Armenia’s credit outlook.

A lasting reduction in tensions would lower some of the geopolitical risks that have weighed on Armenia’s rating. But S&P cautioned that the normalization process remains uncertain, with border demarcation and security arrangements among the issues still to be resolved.

Domestic politics could bring another complication. Civil Contract no longer holds a constitutional majority, meaning it cannot make certain constitutional changes without support from other political forces.

S&P also pointed to the proposed Trump Route for International Peace and Prosperity, or TRIPP, as a project that could expand regional connectivity and create new opportunities for trade and investment. The project remains at an early stage, with financing, project areas and detailed concession terms still to be finalized.

Armenia’s turn toward closer relations with the United States and the EU has come alongside greater friction with Moscow, but Russia remains deeply tied to the Armenian economy.

Trade, remittances, tourism and energy imports continue to leave Armenia exposed to developments in Russia, limiting how quickly Yerevan can diversify its economic relationships, S&P said.

That dependence is already affecting the outlook for 2026.

S&P expects Armenia’s economy to grow 4.9% this year, down from 7.1% in 2025. Weaker consumption and Russian restrictions on Armenian exports are among the factors behind the slowdown.

The agency estimates that expanding Russian restrictions could affect Armenian exports worth about 2% of GDP. Measures that began with selected mineral water and alcoholic beverages in late April have since expanded to flowers, fish, fresh fruit and vegetables.

The effects are expected to become more pronounced in the second half of the year, hitting agricultural production, food processing, rural incomes and export revenue.

Armenian exporters are looking to other markets, including the EU, but S&P expects those efforts to compensate for only part of the losses in the near term.

Even with those pressures, the agency expects growth to average about 5% from 2027 through 2029, supported by investment and consumer spending.

The $6.9 billion in foreign currency reserves marks a significant improvement in Armenia’s ability to withstand external pressure.

Combined with moderate net external debt, the larger reserve buffer has made the country more resilient to security and geopolitical shocks, according to S&P.

The agency expects Armenia’s current account deficit to narrow to 8% of GDP in 2026 from 8.7% last year, helped by weaker domestic demand and continued strength in services exports.

Tourism and information and communications technology remain important sources of export revenue. Tourist arrivals rose nearly 15% in the first half of the year, with Russians accounting for 40% of visitors. Georgia represented 15% and Iran 8%.

S&P expects the current account deficit to gradually fall to about 6% of GDP over the medium term as domestic demand moderates, tourism revenue increases and Armenia expands its export markets.

S&P also expects Armenia to finish the year with a smaller budget deficit than the government initially planned.

The agency forecasts the general government deficit at about 4.2% of GDP in 2026, compared with the government’s 4.5% target.

Central government revenue increased 14.7% year over year in the first half of 2026, while operating expenditures rose 16.1%. The government recorded a cash surplus equal to about 0.6% of GDP during the period, compared with a 0.4% deficit a year earlier.

Capital spending is expected to pick up in the second half of the year.

Under the government’s medium-term fiscal plan, the deficit is expected to fall to 3.5% of GDP in 2027 and 2.8% in 2028. S&P projects an average deficit of about 3.3% from 2027 through 2029.

Government debt, after accounting for liquid assets, is expected to remain slightly above 40% of GDP over the medium term.

For Armenia, the path to a higher rating will depend heavily on whether the recent improvement in its finances can withstand the political and security risks around it.

S&P said continued growth in foreign currency reserves and further progress in relations with Azerbaijan could support an upgrade, particularly if they are accompanied by a lasting decline in regional geopolitical tensions.

The positive outlook could be revised to stable if regional risks rise sharply or if labor and capital inflows from Russia reverse, weakening Armenia’s economy, public finances or balance of payments.

Armenia’s banking sector provides another source of stability. S&P described banks as well capitalized and highly profitable, with strong capital buffers and resilient asset quality.

For now, geopolitical uncertainty remains the biggest threat to Armenia’s credit profile. But record reserves, continued fiscal consolidation and the prospect of a more stable regional environment have put the country in a stronger position — and closer to a potential ratings upgrade.

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