BAKU, Azerbaijan, June 22. If geopolitical tensions with Azerbaijan escalate into full-scale hostilities, it could have detrimental effects on Armenia's domestic politics, severely hampering policymaking and negatively impacting the country's economic and fiscal prospects, says Moody’s, Trend reports.
The rating agency notes that Armenia is particularly vulnerable to high geopolitical risks due to the small size of its economy and its middle-income levels, which limit its ability to absorb shocks. Additionally, the country faces moderate external vulnerability risk. Although it maintains relatively sufficient foreign exchange reserves, its current account consistently records deficits. These deficits are primarily financed through debt-generating inflows rather than foreign direct investment, which exposes the local currency and foreign exchange reserves to potential weakening of sentiment.
Reportedly, Armenia continues to grapple with ongoing challenges such as corruption control and the rule of law. The large size of its banking system and the prevalence of dollarization pose further challenges to the effectiveness of macroprudential and regulatory policies in mitigating risks to financial stability.
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