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Fitch Ratings revised its outlook on Yerevan, Armenia’s capital, to "positive" from "stable" in mid-February, affirming its Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) at 'B+'.

The revision of outlook follows the recent similar action on Armenia's sovereign ratings.

"Yerevan's 'Vulnerable' risk profile is driven by five 'Weaker' key risk factors (revenue robustness and adjustability, expenditure adjustability, liabilities and liquidity robustness and flexibility) and one 'Midrange' factor (expenditure sustainability) in a country rated in the 'B' category or below," Fitch said.

"The assessment reflects Fitch's view that there is a very high risk of the issuer's ability to cover debt service with the operating balance weakening unexpectedly over the scenario horizon (2022-2026) due to lower revenue, higher expenditure, or an unexpected rise in liabilities or debt-service requirements.

"In its rating case, Fitch assumes that Yerevan will continue to draw down its European Investment Bank loan to the limit of EUR7 million. However, the city's debt levels will remain moderate, with little impact on debt-sustainability metrics in 2022-2026. Fitch expects the city's debt payback ratio - the primary metric of debt-sustainability assessment for Type B local and regional governments (LRG) - will remain strong at under 5x, which corresponds to a 'aaa' assessment. The latter is also supported by prudent secondary metrics.

"Fitch classifies Yerevan as a type B LRG, which has to cover debt service from cash flow on an annual basis. Yerevan's 'bb-' SCP reflects a 'Vulnerable' risk profile and debt sustainability metrics assessed at 'aaa' under Fitch's rating case. The 'bb-' SCP also reflects peer comparison. The IDRs are not affected by any asymmetric risk or extraordinary support from the central government, but they are capped by Armenia's sovereign IDRs at 'B+'," the agency added.

The Yerevan Municipality on Tuesday haled the Fitch outlook revision as a “key achievement”.