Russia’s credit rating outlook was lowered to stable from positive at Fitch Ratings as political uncertainty spurs capital flight and threatens plans to wean the economy off its dependence on energy exports.
“Political uncertainty in Russia has risen and the global economic outlook has worsened since Fitch last affirmed the rating” at BBB, the second-lowest investment grade, in September, Charles Seville, director in Fitch’s sovereign group, said in the statement. “Recent events have highlighted the limitations and risks associated with Russia’s political model.”
Prime Minister Vladimir Putin is facing the biggest demonstrations since he came to power more than a decade ago over accusations of ballot-rigging in Dec. 4 parliamentary elections. He’s seeking to return to the presidency in March 4 polls after pushing aside his protege, President Dmitry Medvedev. None of the three main rating companies have upgraded Russia since the 2008-2009 global financial crisis.
“It’s unclear how the country’s leadership will respond to the unexpected wave of protests triggered by the elections,” Fitch said. “In the long term, democratic development that leads to better governance could be positive for Russia’s ratings, but in the short term, uncertainty has increased.”
Putin has said Russia’s debt grade is an “outrage” that lifts corporate borrowing costs and increases risks. The nation’s sovereign credit rating was last raised by New York-based Moody’s Investors Service in 2008 to Baa1, the third-lowest investment grade, one level ahead of Brazil and four below China.
The 30-stock Micex Index dropped 0.4 percent to 1456.92 as of 2:19 p.m. in Moscow. The ruble pared a gain of as much as 0.2 percent against the dollar to trade little changed at 31.8305.
Russia’s dollar Eurobonds due 2020 advanced, lowering the yield 19 basis points to 4.447 percent. The yield on dollar debt due 2015 slid 12 basis points to 3.14 percent.
“Political uncertainty increases the risk of capital flight, which could put greater pressure on central bank of Russia reserves and the ruble,” the rating company said. “A government under popular pressure may be less inclined to carry out a fiscal adjustment, to reduce the non-oil fiscal deficit towards its pre-crisis target of 4.7 percent of GDP.”
Russia’s net outflow of capital more than doubled last year to $84.2 billion, reaching the second-highest level since central bank records began in 1994, Bank Rossii said on its website Jan. 12, citing preliminary data. Outflows in the fourth quarter advanced to $37.8 billion from $19 billion in the previous three months.