The international rating agency Standard & Poor's (S&P) has assigned a credit rating to the Armenian government for the first time ever, the Central Bank reveals.

On October 12, S&P Global Ratings assigned its 'B+' long-term foreign- and local-currency sovereign credit ratings to Armenia. At the same time, the agency assigned its 'B' short-term foreign- and local currency ratings. The outlook is positive. S&P also assigned its 'BB-' transfer and convertibility assessment to Armenia.

The positive outlook reflects Armenia's prospects for a continued rapid economic expansion over the next two-to-three years, the agency said. It also reflects the potential for faster-than-anticipated reduction in external leverage as well as stronger fiscal performance, beyond expectations.

"Our ratings on Armenia are constrained by evolving institutional settings, low income levels, high external indebtedness, and sizable external financing needs. We also factor in the recent erosion of public finances, albeit with well-contained debt servicing costs. The ratings are supported by Armenia's positive growth outlook, its fiscal consolidation plans, the availability of external official funding, and a prudent policy framework that has helped preserve economic stability despite severe and synchronized shocks in 2020," the agency said.

"We expect real GDP growth of 6.3% in 2021 as Armenia recovers from the pandemic- and war-induced shocks. Domestic political stability has settled in following the strong renewal of the government's mandate in the June elections. We expect that near-term external security risks will remain contained following last year's conflict.

"At the same time, several risk factors could impair Armenia's growth outlook. The country has strong trade links with Russia and so depends on economic developments there. Russia is the most important destination for Armenia's exports of both merchandise and human capital. In turn, it is also the most important source country of remittances, which proved to be a key transmission channel when they decreased in the wake of the pandemic. Although we expect the Russian economy to post a strong rebound of 4.0% in 2021 and expand by 2.6% in 2022, negative terms of trade shocks and stronger international sanctions could weigh on its economic performance. In addition, Armenia is somewhat susceptible to swings in the international commodity markets, given the importance of copper, gold, and other metals in its exports."