Russia Kept Investment Debt Grade at Fitch on Balance Sheet

Russia’s debt rating was left at the lowest investment grade by Fitch Ratings, which cited the country’s strong balance sheet as it refrained from joining other major credit evaluators in cutting the sovereign to junk status.

Fitch, which last downgraded Russia in January, left the sovereign at BBB-, its lowest investment grade, according to a statement Friday. The outlook on the rating remains negative.

Russia’s economy is sinking into its first recession in six years, ravaged last year by a currency crisis, a collapse in oil prices and sanctions over the conflict in Ukraine. A reserves stockpile of about $360 billion is helping the government contain the fallout, underpinning the investment grade, Fitch said in March.

The agency cited “a strong sovereign balance sheet and low sovereign financing needs against structural weaknesses (commodity dependence and governance risks), high growth volatility and geopolitical tensions,” according to the statement.

The ruble, which lost almost half of its value against the dollar in 2014, has gained 8.5 percent this year. The central bank has resumed foreign-currency purchases to boost its international reserves to $500 billion, which is “comfortable” to cover as much as three years of significant capital outflows, Bank of Russia Governor Elvira Nabiullina said last month.

Outflows Slow

Net capital outflow slowed to $32.6 billion in the first three months of 2015 from $77.4 billion in the final quarter of last year, according to central bank estimates. The full-year total may be about half of last year’s record outflow of more than $150 billion, according to the Finance Ministry.

While the government unleashed a 2.3 trillion-ruble ($38 billion) anti-crisis plan to help banks and industry, its credit rating was cut to junk by Standard & Poor’s in January and by Moody’s Investors Service in February. Finance Minister Anton Siluanov, who has blamed “political factors” for the downgrades, on Thursday said that his ministry didn’t anticipate a rating change by Fitch.

The central bank also argues that the financial industry has stabilized, which has allowed policy makers to start easing policy. The monetary authority has cut its benchmark interest rate four times this year after having raised it six times in 2014, including a December emergency increase by 650 basis points, the biggest since the nation’s 1998 default.

In a potential threat to Russia’s reserves buffer, the wider economy has yet to show the same stabilization. While the government estimates a 2.8 percent decline in gross domestic product this year, Fitch Ratings forecast a contraction of 3.5 percent to be followed by a weak recovery in 2016 and 2017.

The shrinking economy is threatening to result in the widest budget deficit in five years, which has forced the government to dip into its Reserve Fund, one of the two sovereign wealth funds. Russia may use as much as 4 trillion rubles ($72 billion) in 2015-2017 from the fund, which was $76.8 billion as of July 1, according to Siluanov.

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