Fitch sees Armenia-Azerbaijan normalization boosting economic outlook

International rating agency Fitch Ratings has hailed the start of trade and economic relations between Armenia and Azerbaijan and believes that normalization of ties with Baku could improve Armenia's economic prospects, Report said, citing the agency.

Fitch made the remarks in its latest rating action commentary on Armenia, noting that Armenia and Azerbaijan have signed a joint declaration aimed at reaching a peace agreement, which significantly reduces the risks of military escalation in the near term. However, the agency thinks the signing of a final agreement remains uncertain, as it depends on constitutional changes in Armenia to remove references to Karabakh, which requires a popular referendum that will potentially take place after the June parliamentary elections.

"Trade with and through Azerbaijan has begun to open up. Relations with Türkiye are substantially improving, and the Turkish government is reportedly considering reopening its land border with Armenia," Fitch noted.

Fitch Ratings has revised the outlook on Armenia's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at "BB-".

The agency affirmed Armenia's long-term rating at "BB-" and revised the outlook from "stable" to "positive."

Fitch estimates that the 2025 general government (GG) deficit in Armenia was 5.0% of GDP, lower than the budgeted 5.5% but still above the "BB" median (3.0%), reflecting lower capex and interest payments. "Armenia's 2026 budget targets a fiscal deficit of 4.5% of GDP based on reduced defence expenditure (down 2.1pp to 4.7% of GDP), while health spending has increased by 0.5% of GDP to fund the phase-in of a universal health insurance system."

Fitch expects the Armenian government to meet its 4.5% deficit target in 2026, but from 2027 the agency expects deficits above the authorities' 3.5% medium-term target.

"Dollarisation continues its gradual decline, with deposit dollarisation falling to around 43.3% in November 2025, supported by regulatory measures and increased confidence in the dram," the agency said.