Voices from Russia

Monday, 26 February 2018

What Sanctions? Russia’s Investment Rating Upgraded

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On 23 February 2018, Standard and Poors raised its estimation of Russia’s sovereign credit rating from BB+ to BBB-. This is good news for the Russian Federation as it continues to realign its economy in response to the various sanctions that the West (mainly the USA) imposes on the nation. Under President Putin’s leadership, Russia gradually improved since the peak of the sanctions crisis near the end of 2015. The rating change means that S&P no longer considers Russia as “junk” investment territory. The Financial Times reported that S&P attributed the upgrade to the country’s “prudent policy response” taken in response to the sanctions. The analysts further said this:

The ratings are supported by Russia’s commitment to conservative macroeconomic management, its strong net external asset position, low government debt, and relatively high monetary flexibility, including a flexible exchange rate. The ratings are constrained by our assessment of Russia’s economy, which remains dependent on revenues from oil and gas exports, as well as by wider institutional and regulatory weaknesses. Further constraints include geopolitical tension, and resulting international sanctions, creating a drag on Russia’s long-term economic growth prospects.

The S&P rating lift takes Russia into stable investment territory. Another analytics agency, Fitch Ratings, affirmed Russia’s long-term foreign and local currency issue default ratings, also at “BBB-” with a Positive Outlook:

Russia’s ratings balance a strong sovereign balance sheet, robust external finances, and an improved policy framework against weaker macroeconomic performance than peers, structural weaknesses (commodity dependence and governance risks), and geopolitical tensions. The Positive Outlook reflects continued progress in strengthening the economic policy framework underpinned by a more flexible exchange rate, a strong commitment to inflation-targeting, and a prudent fiscal strategy. These policies contribute to improved macroeconomic stability and, together with robust external and fiscal balance sheets, increase the economy’s resilience to shocks. The estimated federal budget deficit narrowed to 1.5 percent of GDP in 2017, less than half the 2016 out-turn and well below the BBB median. The non-oil deficit shrank to 7.9 percent of GDP in 2017 from 9.1 percent in 2016. Fitch forecasts that Russia will post a fiscal deficit of 0.6 percent in 2018 (outperforming the budgeted 1.3 percent deficit), reflecting higher-than-budgeted oil prices, continued non-oil and gas revenue growth, and expenditure restraint. It should achieve the current official 2019 primary balance forecast comfortably, with Fitch forecasting surpluses at both the primary and overall levels.

The rest of the report is similarly quite positive. It’s an interesting point that many Russian businesses are grateful for the opportunities created by the sanctions even though they had the intent to hurt and punish Russia for whatever cause célèbre the West could dream up. Whatever doesn’t kill you only makes you stronger, doesn’t it?

25 February 2018

Seraphim Hanisch

Russia Feed     

http://russiafeed.com/what-sanctions-russia-investment-rating-got-upgraded/

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