Outlook for Russian regions stable, but credit risks may grow in medium term - Moody's
LONDON. June 19 (Interfax) - The recovery in the Russian economy in 2010-11 has led to a stabilisation in regional financials, reflected in improving operating margins, decreasing financing deficits and contained debt metrics, Moody's Investors Service said in an Industry Outlook, "Russian Regions: Stable Outlook, but Credit Risks May Grow in Medium Term", which was published on Tuesday.
Moody's said in a press release on the report: "The stable outlook assigned to the sector is based on Moody's expectations of continuing, albeit decelerating, economic growth, contained funding deficits and manageable debt affordability.
"Sustained economic growth in the last two years was the key driver of the stabilisation in regional financials to pre-crisis levels. At year-end 2011, average total revenues for rated Russian regions exceeded the levels recorded in 2008, while operating surplus slightly rose and financing deficits (in most cases) recovered to modest levels comparable with pre-crisis figures.
"In Moody's central scenario for 2012, Russian regional governments are forecasted to maintain sustainable fiscal performances, with stable operating margins and contained financing deficits on average. This scenario is based on anticipated GDP growth of 3.3%-3.5% and favourable commodity prices. Also factored in this scenario is the materialisation of some downside risks in the next 12-18 months. Moody's believes that conservative budget management and the potential for further austerity measures should help offset key rating pressures, such as a deceleration of economic growth and/or moderate decline in energy prices, anticipated over the outlook period.
"At the same time, Moody's cautions that future challenges may lead to further differentiation within the rated universe. The progressive decrease in federal transfers and the rate of growth in social obligations may hinder further recovery in regions' operating margins. Additional medium-term pressures are likely to come from market volatility and regions' growing refinancing needs, which should be considered in conjunction with modest liquidity positions on average.
"Moody's currently rates 16 regions in Russia, with ratings spanning a wide range from Baa1 to Ba3."