South Caucasus country looks to banking and IT sectors to drive growth after Azerbaijan peace deal
At a glance
- Armenia will pause further eurobond debt issuance until at least 2027 due to higher borrowing costs, despite strong demand for its recent $750mn eurobond
- The government is targeting a gradual fiscal consolidation from a 5.5% deficit in 2025 to 2.8% by 2028, while supporting refugee integration and national security spending
- Technology sector growth, supported by tax incentives and foreign investment from firms like Nvidia and Levi Semiconductor, is becoming a central pillar of Armenia’s economic strategy
Armenia’s finance minister has ruled out any further eurobond debt issuance until at least 2027, citing a significantly higher yield on its most recent raise caused by the current higher interest rate environment.
While the country’s $750mn eurobond issued in March was three times oversubscribed, the 10-year bond (issued to replace a maturing instrument) priced with a yield of 7.1 per cent, significantly higher than the 3.9 per cent seen in the last eurobond issued four years ago.
“We already have three outstanding bonds, and have seen the price in the market, driven by high interest rates,” finance minister Vahe Hovhannisyan told The Banker on the sidelines of the Asian Development Bank’s annual meeting in Milan. “Why would we want to issue an expensive bond if we can manage our debt ourselves?”
Net proceeds of the March bond are to be used to finance the country’s national debt, which, while increasing 5.8 per cent in US dollars in the first quarter of the year, remains at a safe level, said Hovhannisyan. According to 2024 results, national debt stood at $13.5bn.
“In the 2025 budget we have planned a 5.5 per cent deficit to support refugees from Nagorno-Karabakh and to increase our national security infrastructure. We decided to bring forward some expenses we were planning to do in the coming year. We now target a fiscal deficit of 2.8 per cent in 2028.”
“There is a large inflow of technology companies in Armenia, like Nvidia. We are very good at chip design.”
Vahe Hovhannisyan, Armenian finance minister
Hovhannisyan hopes the recent peace deal with Azerbaijan, which would bring to an end 35 years of conflict between the two countries, will help to improve investor confidence in the region.
“Most of our land borders are closed, but when we can open them it will completely change the shape and outlook of the region,” he said.
Under the terms of the peace agreement, Armenia has recognised the sovereignty of Azerbaijan over the disputed Nagorno-Karabakh region. Over 100,000 Armenians have left the region since Azerbaijan reclaimed the region in 2023.
He questions why the country still receives a BB- rating from both S&P and Fitch, saying the country’s spreads are similar to those of Romania — which has a triple B minus rating from Fitch — when comparing US Treasury bonds and 10-year benchmark bonds that have been issued.
Fitch reaffirmed its rating of Armenia in January, pointing to the fiscal deficits relative to peers, high financial sector dollarisation, and geopolitical risks.
Hovhannisyan says Armenia is forecasting 5.1 per cent GDP growth this year, ahead of the ADB’s forecast of 5 per cent and a 4.5 per cent rise predicted by the IMF. He points to the financial sector as being one of the key growth areas, with KPMG reporting at the end of last year that banking assets grew by 15.6 per cent in the 12 months to the end of June 2024, following a 16 per cent year-on-year increase for June 2023.
Modern Industry
He also pointed to the development of the country’s IT and high-value manufacturing industries as ushering in a new era of economic growth for the country.
“There is a large inflow of technology companies in Armenia, like Nvidia. We are very good at chip design,” he said.
Nvidia, the world’s largest semiconductor manufacturer, established a research centre in the capital city Yerevan in 2022, while Indian manufacturer Levi Semiconductor signed an agreement last year to set up the country’s first factory producing multicomponent semiconductor and silicon photonic microcircuits.
A number of tax incentives have been introduced to attract start-ups and increase hiring by IT companies.
“We have a support programme providing cash back of 35 per cent of the total capital investment to companies that produce high complexity products in Armenia. I think this is a very attractive and aggressive incentive,” says Hovhannisyan.
The reopening of the Amulsar gold mine, slated to be operational by the end of the year, will create another revenue stream for the country, with Hovhannisyan estimating its output could add as much as 0.5 per cent to the country’s GDP.
While it is expected that US President Donald Trump will levy tariffs on semiconductor imports to the US, Armenian exports were hit with tariffs of just 10 per cent in the “liberation day” tariffs of early April.
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