S&P considers military escalation between Armenia, Azerbaijan unlikely in foreseeable future

S&P Global Ratings has revised its outlook on Armenia to positive from stable, Report informs referring to the ratings agency.

"Simultaneously, we affirmed our 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings. The revision of the outlook to positive reflects our view that there is the potential for improvement in regional geopolitical and security dynamics, specifically further progress toward normalizing diplomatic and trade relations between Armenia and Azerbaijan," S&P noted.

"Progress in negotiations with Azerbaijan could reduce near-term security risks, although the prospect of a durable peace agreement still depends on signing a binding agreement and its effective implementation. Peace negotiations between Armenia and Azerbaijan have progressed, reducing the probability of further military escalation in the near term, in our view. The August 2025 US-brokered agreement marked an important political milestone, signaling commitment at the leadership level and helping to stabilize the security environment. Initial normalization steps have led to modest improvements in regional connectivity and trade, alongside an ongoing Armenia-Türkiye normalization process aimed at reopening borders and establishing diplomatic relations," reads the message. "However, the path to signing and ratifying the peace agreement between Armenia and Azerbaijan remains complex and will take time, in our view. The durability of the agreement will depend on both sides' willingness to implement politically sensitive decisions, the credibility of enforcement, and security arrangements. Outstanding issues include the sequencing and enforcement of border delimitation and the absence of clearly defined security guarantees."

"Domestic political constraints in Armenia may also add a layer of uncertainty to peace agreement negotiations. The authorities are preparing a new constitution, with the draft expected by March and a referendum planned for after the June parliamentary elections. Yet it remains unclear whether the preamble will retain references to the 1990 Declaration of Independence, a key point disputed with Azerbaijan, given the latter views such references as implying territorial claims," the ratings agency added. "We forecast Armenia's real GDP will expand by 5.3% this year and 4.8% in 2027. We project the fiscal deficit to average about 3.3% of GDP over 2026-2029. Considering the narrowing fiscal deficits and high nominal GDP growth, we project general government debt, net of liquid assets, to remain broadly stable at a moderate 44% of GDP in the medium term."