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Standard & Poor's Affirms Russia's Credit Rating
October 26, 2014 17:40

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On October 24, 2014, Standard & Poor's affirmed its 'BBB-/A-3' long- and short-term foreign currency sovereign credit ratings and its 'BBB/A-2' long- and short-term local currency sovereign credit ratings on Russia but the outlook remains negative.
According to the press release, Standard & Poor's Ratings Services expects Russia to maintain a strong net external asset position and moderate net general government debt in 2014-2017.
There is still a risk, however, that S&P could “downgrade Russia over the next 18 months if its external and fiscal buffers deteriorate at a faster pace” than predicted, for example due to any further escalation of the sanctions regime over the Ukraine conflict.
“However, the situation remains fluid and should sanctions ease, one possible consequence could be a modest boost to the Russian economy,” reads the statement.
Standard & Poor's focus on the structural weaknesses in Russia's economy, in particular the strong dependence on hydrocarbons and other commodities. “Russia's relatively weak political and economic institutions also constrain the ratings and impede the economy's competitiveness and its business and investment climates,” adds the official letter.
Standard & Poor's views Russian corporates and banks rated by the agency as having sufficient foreign currency to meet their funding needs through to end-2015.
The statement also says that S&P expects the central bank to provide sufficient liquidity to support the economy, whose growth is projected at an annual 1% in 2014-2017.
GDP per capita is estimated at $13,400 in 2014.
Usable foreign currency reserves are likely to decline to about four months of imports by 2017, from eight months in 2014, as a result of the central bank providing foreign currency liquidity support to the economy.
The agency highlights the depreciation of the rouble against the dual-currency basket (US dollar and euro) by about 20 percent since late 2013, which bolstered the government's fiscal position (as about 50 percent of its revenues are from hydrocarbons and are priced in U.S. dollars) but hit local and regional governments’ balances “as they bear the brunt of the government's increased spending on public-sector wages”.

But the decision to continue redirecting employers' and employees' contributions away from the mandatory funded pension system into the budget will provide about 310 billion roubles in additional revenue, but “deprive the economy of one of its few long-term funding sources,” reads the statement. 

Author: Mikhail Vesely

Tags: Russian economy     

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