The velvet revolution in Armenia that saw the ousting of long-ruling Serzh Sargsyan and his replacement by opposition leader as prime minister Nikol Pashninian had a minimal impact on the economy, according to a new report from Fitch Ratings. 

The international rating agency attributes the lack of economic damage to the “continued smooth functioning” of economic institutions such as the central bank. While warning it is unclear how long the current honeymoon period will last in the impoverished country and acknowledging that domestic political uncertainty “has not been fully dispelled”, Fitch analysts say they anticipate “broad economic policy continuity”.

“Economic disruption from the transition appears to have been minimal. The financial sector did not see destabilising pressure on bank liquidity or deposits, while international reserves remain at prudent levels,” Fitch’s May 17 note says. 

“A favourable external environment in terms of commodity prices, export demand and continued remittance growth reduces near-term risks for the economy.”

While Pashinian has until the second week in June to present his administration's policy programme, Fitch points out that his government includes experienced technocrats as well as private sector professionals and says that “certain factors point to broad continuity in the commitment to preserve macroeconomic and financial stability as well as the sustainability of fiscal accounts”. These include the high level of independence of the central bank, and new Finance Minister Atom Janjughazyan’s previous stint as deputy finance minister and career as a technocrat. 

“Certain reform initiatives to lift growth prospects could overlap with initiatives of the previous government, which aimed for economic diversification and to improve the business environment,” Fitch forecasts. In addition, “Mr Pashinian has clearly stated that he is committed to foreign policy continuity.” This was highlighted during Pashinian’s first trip abroad as prime minister, where he met Russian President Vladimir Putin and other Eurasian Economic Union leaders in Sochi, pledging he will maintain close ties with Armenia’s traditional ally Russia. 

The main risk to the generally positive outlook is the fact that Pashinian does not currently have a parliamentary majority. 

“Mr Sargsyan's Republican Party of Armenia remains the largest party in parliament, and it is not clear that Mr Pashinian, a political outsider, can build and maintain a parliamentary majority and balance the need to work with entrenched economic interest groups while maintaining popular support by pursuing his broad aims of tackling corruption and a commitment to social justice,” Fitch analysts warn. 

This could also make it difficult for Pashinian to fulfil his pledge to initiate parliamentary elections this year, as this would require the approval of three-fifths of MPs. 

Fitch rates Armenia ‘B+' and the country has had a positive outlook since December 2017.