S&P raises Russia's short-term rating to A-2, affirms long-term at BBB
FRANKFURT. June 27 (Interfax) - Standard & Poor's Ratings Services said that is has affirmed its 'BBB' long-term foreign currency sovereign credit rating and its 'BBB+/A-2' long- and short-term local currency sovereign credit ratings on the Russian Federation (Russia).
S&P said in a statement: "We also raised the short-term foreign currency credit rating to 'A-2' from 'A-3'. The outlook is stable.
"At the same time, we affirmed the 'ruAAA' Russia national scale rating. The transfer and convertibility assessment on Russia remains at 'BBB'."
"We affirmed the ratings because of the Russian government's slight net asset position, which reflects previous fiscal surpluses and currently moderate deficits, as well as the economy's slight net external asset position, with liquid external assets exceeding the economy's gross external debt," Standard & Poor's credit analyst Kai Stukenbrock was quoted as saying in the statement.
The statement said: "The ratings on Russia remain constrained by structural weaknesses in Russia's economy--in particular strong dependence on hydrocarbons and other commodities--and by weak political and economic institutions that impede the economy's competitiveness, leading to a weak investment climate and business environment.
"We do not anticipate recent parliamentary elections and the election of Vladimir Putin to a third term as president to lead to a significant change in policy. As a result, we believe efforts to advance economic and fiscal reforms will occur gradually and that state capitalism and the close links between politics and business will likely prevail.
"The general government recorded a surplus of 1.6% of GDP in 2011, helped by high oil prices last year. Oil contributes about half of federal and a quarter of general government revenues, and we estimate that a sustained $10 change in the oil price will lead to a 1.4% of GDP change in government revenues. As a result, public finances remain highly vulnerable to oil price swings. In our base-case scenario, which is based on an oil price of $100, we expect the budget balance to deteriorate to a slight deficit in 2012, widening marginally to negative 1.5% of GDP in 2015. Although, the government is in a slight net asset position, we expect this to disappear by 2014.
"We expect GDP to increase at about 3.5% per year until 2015, hindered by numerous structural constraints. These include a state-centered economic model that promotes regional monopolies and a lack of competition, inadequate infrastructure, and a business environment that deters both domestic and foreign investment, in our view."
"The change in the short-term foreign currency rating to 'A-2' from 'A-3' reflects the revision of our criteria regarding the link between long-term and short-term sovereign credit ratings. According to this criteria, the short-term rating on a sovereign government is derived directly and solely from the long-term rating As a result, the change in the foreign currency short-term rating does not reflect an improvement in Russia's short-term creditworthiness.
"The outlook is stable to reflect our assessment of balanced risks to the ratings," Mr. Stukenbrock said, adding: "The government's budget and the economy as a whole remain vulnerable to fluctuations in key export prices. These weaknesses are offset by relatively low government debt levels and Russia's relatively robust external position."
The statement said: "We could lower the ratings on Russia if government deficits were to deteriorate beyond our expectations. This could result from a sustained drop in oil prices, resulting in a fall in government revenues; increases in current expenditure, which have been the hallmark of fiscal policy for over a decade; or from a combination of both factors.
"Ratings upside could result from the government's implementation of policies that would broaden the economic base and improve growth performance, or if the government brought the fiscal position back into balance over the oil price cycle."
