Country Risk Rating

A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

The business environment is mediocre. The availability and the reliability of corporate financial information vary widely. Debt collection can sometimes be difficult. The institutional framework has a few troublesome weaknesses. Intercompany transactions run appreciable risks in the unstable, largely inefficient environments rated B.


  • Economy able to stand up to political upheaval
  • Determination to pursue reforms on corruption, justice, and competition
  • Major mining resources (gold, copper, molybdenum, zinc)
  • Significant financial support from international organizations and the diaspora
  • Relative flexibility of the dram exchange rate
  • Member of the Eurasian Economic Union (EAEU) and partnership agreement with the EU
  • USD 250 million stand-by arrangement (2019/2022) with the IMF


  • Geographical isolation aggravated by a lack of infrastructure and the closure of two out of four borders
  • Dependent on ore (40% of exports and nearly 10% of GDP) and agriculture, despite ongoing diversification
  • Highly dependent on Russia (trade: 27% of exports and 26% of imports including gas, FDI, expatriate transfers, security: support in the conflict with Azerbaijan)
  • Highly dollarized economy (60% of bank deposits)
  • Persistently high level of unemployment (19% overall and 40% among 18-30 year-olds) despite a declining population
  • 30% of the population lives below the poverty line
  • Conflict with Azerbaijan over Nagorno-Karabakh and an uneasy calm on the border with the Azeri enclave of Nakhchivan

Current Trends

Domestic demand is strong but sensitive to external factors

Activity is expected to remain robust in 2020, still driven by domestic demand. Household consumption (87% of GDP) will benefit from the 23% increase in the minimum wage (October 2019). Fiscal policy will remain slightly accommodative with a single income tax rate of 23% replacing the previous scale of 23% to 36%, wage raises for certain civil service grades and pension increases. Despite buoyant consumption and rising import tariffs, inflation is expected to be moderate, if food and energy prices do not slip. This, coupled with the firm dram, could allow the central bank to continue cautiously reducing its key rate (5.5% in October 2019). However, the impact of monetary policy should not be overestimated, as credit plays a small role and the average bank lending rate exceeds 12% in an economy that remains highly dollarized (more than 50% of deposits and credit). The future for expatriate remittances (over 15% of GDP, with 70% coming from Russia), which provide fuel for consumption, is uncertain, even if the Russian economy may benefit from the launch of a public investment program. Business investment, although still modest (17% of GDP), should get a boost from the development of tourism, clothing and, above all, IT services, as well as from a more stable political situation. In addition, companies will benefit from the income tax cut from 20% to 18% and from the increase in the tax threshold. However, it remains unclear whether the development of the Amulsar gold mine, which was halted in 2018 for environmental reasons and because of blocked access, will resume. Public spending excluding defense will remain constrained by fiscal consolidation. The contribution of foreign trade to growth is expected to remain negative due to strong imports and the adverse impact of the sluggish European economy on exports. In addition, while the gold price should move positively, the copper price may fall.

Fiscal consolidation and stabilization of the current account deficit

Political upheaval has not derailed the fiscal consolidation process initiated in 2016. The aim is to very gradually reduce the debt, which is 78% denominated in foreign currency (50% in dollars and 30% in SDR), and free up additional resources for investment and social purposes. The increase in tax expenditure is not expected to threaten the process, nor will a further increase in the military budget in 2020 (it already went up by 33% in 2018 and 26% in 2019). Budgetary revenues (22% of GDP in 2018) should continue to benefit from a favorable economic environment and improved tax collection following the computerization of the tax administration in 2019, the automation of tax returns (2020) to combat tax evasion, and increased gambling taxes and excise duties (alcohol, tobacco).

The current account deficit is expected to remain high in 2020. The trade deficit should remain close to 14% of GDP. Remittances from the diaspora and expatriate workers, less income repatriation by foreign investors, will cover half of this. The remainder will be financed by project loans from international financial institutions (EBRD, ADB), FDI and public debt. Half of the external debt, estimated at 88% of GDP, is carried by the State and a quarter by banks. It is mostly medium- and long-term, as well as concessional in nature.

Balance between the West and Russia

Demonstrations in spring 2018 forced Prime Minister Serzh Sargsyan to relinquish the power he had held since 2008. Following this “Velvet Revolution”, the leader of the protests, former journalist Nikol Pashinyan, was placed at the head of a new government comprising representatives of the opposition and qualified individuals. After Mr. Pashinyan resigned in order to trigger snap parliamentary elections, his “My Step” coalition, which includes the Civil Contract Party that he leads, won an overwhelming victory, taking 70% of the votes and allowing Mr. Pashinyan to secure a sufficiently large majority in Parliament (88 out of 132 MPs) to make constitutional changes. The coalition’s program focuses on fighting corruption, addressing the porous boundaries between the business world and politics, tackling the informal economy, renewing judicial personnel and ending monopolies. While maintaining relations with the West, Mr. Pashinyan is also tactful in his dealings with Russia, which has both a military and an economic presence in the country, by providing assurance that foreign policy will stay unchanged (membership of the Collective Security Treaty Organisation). He will have to manage an expectant population that is impatient for change. This is especially true among young people, for whom the unemployment rate is four times higher in urban areas than in rural areas and whose overall employment rate is twice as high as that of the rest of the population.

On the geopolitical level, the armed conflict with Azerbaijan persists over the self-proclaimed independent enclave of Nagorno-Karabakh, officially Azeri but overwhelmingly populated by Armenians, and the adjacent Azeri territories occupied by Armenian-backed independence fighters. The ceasefire on the border with the Azerbaijani enclave of Nakhchivan is fragile, with security in the region primarily dependent on the balance between the combatants maintained by Russia and, to a lesser extent, Turkey and Iran.


Coface (02/2020)