S&P raises Russia junk credit outlook to positive
19 Mar 2017 - 0:19
Moscow: The outlook on Russia’s junk credit ranking was raised by S&P Global Ratings as the economy shifts into higher gear and the government keeps the budget deficit in check.
S&P lifted the outlook to positive from stable, leaving its foreign-currency rating one step short of investment grade at BB+, on par with Indonesia and Bulgaria, according to a statement on Friday. Moody’s Investors Service ranks the country at the same level, while Fitch Ratings has it one step above junk. S&P, which raised Russia’s outlook to stable in September, cited stabilizing growth in gross domestic product for its latest decision.
“External pressures appear to have abated significantly over the last 12-18 months,” S&P said in the statement. “The positive outlook indicates that we may raise our ratings if the Russian economy continues to adapt to the relatively low oil-price environment while maintaining its strong net external asset position and comparatively low net general government debt burden.”
The move puts Russia on the verge of regaining the investment status it lost two years ago when the collapse in oil prices, compounded by international sanctions over its involvement in the war in Ukraine, pushed the world’s biggest energy exporter into recession. Helped by stabilizing oil prices, it’s since adjusted by allowing the ruble to trade freely and keeping fiscal and monetary policy tight, reining in inflation from a 13-year high in 2015 to near the central bank’s 4 percent target.
The improving sentiment in Russia is playing out in the market, with the ruble gaining about 7 percent against the dollar in 2017, the best performance in developing Europe.
While strains on the economy are easing, the Finance Ministry still wants to reduce the budget shortfall by one percentage point each year to balance the books by 2020. This year’s deficit may be about 2 percent of GDP, compared with an initial plan for 3.2 percent, Finance Minister Anton Siluanov (pictured) said last month.
“Consolidation will depend partly on the pace of proposed tax, pension, and labor reforms,” S&P said. “However, since these measures could be unpopular, it is likely that most of them will be launched after the 2018 presidential elections.”
Government measures will help Russia regain investment-grade ratings, Siluanov said after S&P’s announcement in Baden-Baden, Germany.
The rating company said it expects the general government deficit at 2.4 percent by 2019. Inflation “will only slightly” breach the central bank’s target this year and average about 4 percent over 2017-2020.
GDP grew at the start of the year and may expand about 2 percent in 2017 on an annual basis, to Economy Minister Maxim Oreshkin.