Country Risk Rating

A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very 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.


  • Significant mining resources (gold, copper, molybdenum, zinc)
  • Comfortable foreign exchange reserves and relative flexibility of the dram's exchange rate
  • Significant financial support from international organizations, including the International Monetary Fund (IMF)
  • Member of the Eurasian Economic Union (EAEU) and Partnership Agreement with the European Union (EU)
  • Will to reform in terms of corruption, justice, and competition


  • Dependence on minerals (50% of exports and 10% of GDP), despite ongoing diversification
  • Strong dependence on Russia in terms of security, trade (first partner), expatriate remittances (63% of total), and FDI (37% of total)
  • Banking system still highly dollarized (42% of deposits and 48% of loans)
  • Persistently high levels of poverty (30% of the population) and unemployment (24%)
  • Geographic isolation aggravated by a lack of infrastructure and the closure of two out of four borders
  • Armed conflict with Azerbaijan around the enclave of Nagorno-Karabakh, which may give rise to occasional clashes, even after the ceasefire of 9 November 2020

Current Trends

Military defeat weakens the government

27 September 2020 marked the resurgence of the armed conflict that has opposed Armenia and Azerbaijan for thirty years in Nagorno-Karabakh. This six-week confrontation was the deadliest since the 1994 war, which led to the proclamation of the independence of this enclave which, although internationally recognized as Azerbaijani territory, was at the end of the war populated by Armenians and under the control of forces supported by Armenia. After several unsuccessful attempts, a ceasefire was concluded under the aegis of Russia, leading to the end of hostilities and restoring Azerbaijan's control over the majority of the territories of Nagorno-Karabakh. While both sides may respect the agreement in the short-term, occasional clashes cannot be excluded. This agreement has been badly received by parts of Armenian public opinion, giving rise to demonstrations organized by the opposition parties demanding the resignation of Prime Minister Pashinyan and his government. Appointed in May 2018 after the Velvet Revolution, which forced the party that had governed for twenty years to relinquish power, he had until then enjoyed strong popular support and support from his coalition, the "My Step" Alliance, which holds 2/3 of the seats in Parliament. While this majority has allowed him to remain in power, his resignation and early elections in 2021 are possible. The implementation of his reform agenda is uncertain. Nevertheless, measures have already been adopted, such as a law facilitating the lifting of banking secrecy or the creation in 2021 of an independent entity responsible for the detection and investigation of corruption offenses. A referendum to replace seven of the nine judges of the Constitutional Court is scheduled for the summer of 2021 and may indirectly address Pashinyan’s legitimacy.

A sluggish recovery was driven by domestic demand

The double shock of the pandemic via, for instance, the lockdown from mid-March to mid-May 2020, and the armed conflict leading to the introduction of martial law, put an end to three years of robust growth. After the recession of 2020, the country is expected to experience very weak growth in 2021. Services (54% of GDP) are expected to rebound slightly and private consumption (82% of GDP) to make a positive but small contribution to growth, thanks notably to the rebound in expatriate remittances (11% of GDP) from Russia (63% of total) and the United States (14%) since August 2020. On the other hand, real wage growth is expected to remain weak and unemployment high, and pressure on the labor market is likely to increase with the arrival of refugees from Nagorno-Karabakh. While individuals could rely on exceptional money transfers in 2020, the reform plan announced in early December 2020 (and to be implemented by June 2021), focusing in particular on social assistance to the victims of the conflict, should have a limited impact. Furthermore, investment (18% of GDP) is still expected to contribute negatively to growth. Constraints on the state budget are expected to result in limited investment, as are state-guaranteed loans in 2020 to businesses in the affected sectors, including tourism (14% of GDP) and agriculture (12% of GDP).

Growth in credit to the private sector (62% of GDP) is expected to slow. Boosted by the fall in the central bank's policy rate in March-November 2020, which returned to its pre-crisis level in December 2020 (5.25%), it could be limited by the risk of an increase in non-performing loans (6% of the total in September 2020). Adding the depreciation of the dram and the moderate recovery in oil demand and prices, inflation should increase slightly in 2021 whilst remaining below the central bank's target of 4%.

Trade is expected to contribute negatively to growth. Poorly diversified exports (41% of GDP), driven in particular by the good performance of gold (12% of the total) and copper ore (24%), should be offset by the rebound in imports (54.5% of GDP), capital goods (20.5% of the total) and oil (12%).

Account consolidation will wait

After narrowing thanks to the decline in the trade deficit, which more than offset the decline in expatriate remittances and diaspora tourism, the current account deficit is expected to widen slightly in 2021 due to the rebound in imports. While FDI, which is declining, should finance the deficit to a lesser extent, external debt will take over. Foreign exchange reserves remain comfortable (USD 2.2 billion in November 2020, 5.4 months of import coverage), but have nevertheless declined by USD 424 million over January-November 2020, notably to offset the slow but steady depreciation of the dram since the end of September 2020. It will weigh on the external debt-to-GDP ratio (projected at 99% for 2020), although largely medium- and long-term and concessional in nature.

While fiscal consolidation had been undertaken since 2016, public accounts were severely impacted in 2020 by the increase in military and social spending, particularly with the support plan (2.3% of GDP). After activation of the safeguard clause of the fiscal rule for 2020, spending is expected to decline and the deficit to reduce slightly in 2021. It should be financed by external debt from private actors and multilateral donors, at the cost of a further significant increase in the public debt-to-GDP ratio. Although exclusively medium- and long-term, it is 72% denominated in foreign currency.


Coface (02/2021)