Interfax Russia & CIS Banking and Finance Weekly.
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Standard & Poor’s Ratings Services raised its long-term foreign currency sovereign credit rating on the Russian Federation to ‘BBB’ from ‘BBB-’ and its long-term local currency sovereign credit rating to ‘BBB+’ from ‘BBB’, S&P said in a news release. Standard & Poor’s also raised its short-term ratings on Russia to ‘A-2′ from ‘A-3′ and affirmed its ‘ruAAA’ Russia national scale rating. The outlook is stable. “The upgrades reflect the ongoing improvement in the government’s financial strength, attributable to recent unusually high oil prices and a successful debt-management strategy,” said Standard & Poor’s credit analyst Helena Hessel. “Significant policy and institutional risks, which continue to be a key constraint on the ratings, are likely to increase in advance of the 2008 presidential elections, but do not materially affect the government’s ability to pay its low and declining debt over the medium term,” Hessel said. Russia’s fiscal and external balance sheets strengthened well beyond expectations in 2005. Despite political pressure, prudent management of the Stabilization Fund (SF) resulted in the accumulation of funds at a much faster rate than expected, creating a relatively sizable safeguard for the coming years, the agency said. Moreover, the government’s net external creditor position has strengthened radically this year, reflecting prepayment of its Paris Club debt, a continuing accumulation of international reserves, and rising current account receipts (CARs), S&P said. Net general government assets increased to 31% of CARs at year-end 2005, up from 9% at year-end 2004, and this positive trend should continue in 2006-2008, the agency said. Russia’s macroeconomic stability has weakened, however, as massive inflows of funds from high oil prices have made inflation increasingly difficult to control, the agency said. Furthermore, unpredictable policy enforcement and regulatory actions depress domestic and foreign direct investment, which is needed to support growth and economic efficiency, it said. “The current strong fiscal and external liquidity positions are offset by uncertainties in the country’s political environment in the context of the upcoming election cycle,” said Hessel. “Continued budgetary surpluses and progressively rising resources in the Stabilization Fund, however, should support improved creditworthiness over the medium term,” she said. Russia’s long-term creditworthiness hinges on the transition to a more pluralistic, decentralized, and accountable government that could, in the long term, engender greater confidence in its institutions and lead to a more coherent policy approach, the agency said. Increased transparency in decision-making and a more independent judiciary would strengthen the current political environment and enhance the administration’s ability to tackle structural reform, S&P said. “Such progress would significantly improve the fundamentals both of Russia’s political economy and of its country risk, although we do not expect these developments in the short to medium term,” Hessel said. |