Russia’s Outlook Raised to Stable by Fitch on Policy Action

  • Foreign-currency rating left at BBB-, lowest investment grade
  • Response to oil drop ‘coherent and credible,’ Fitch says

Russia’s credit outlook was raised by Fitch Ratings, the last major assessor that ranks the country above junk.

Fitch lifted the outlook to stable from negative, keeping the sovereign’s foreign-currency rating at BBB-, its lowest investment grade and on par with India and Turkey. That follows a similar move last month by S&P Global Ratings, which along with Moody’s Investors Service ranks Russia at the highest junk level.

“Russia has implemented a coherent and credible policy response to the sharp fall in oil prices,” Fitch said Friday in a statement. “The strength and quality of the policy response stands out relative to those of other oil producers similarly affected by the oil price shock.”

The world’s largest energy exporter is winning recognition for improving creditworthiness as it looks to break free of its longest recession under President Vladimir Putin. The government has kept a tight rein on public finances, complementing efforts by the central bank to meet its inflation target of 4 percent next year after a currency crisis and the crash in oil prices knocked its policy off course.

The improving sentiment in Russia is playing out in the market, with the ruble gaining about 17 percent against the dollar in 2016, the best performance in emerging markets after Brazil’s real.

Widening Deficits

The moves by Fitch and S&P mean that Russia will enter next year with burnished credentials as it ratchets up borrowing. Already running the widest budget deficit in half a decade, the government is preparing a fourfold increase in domestic borrowing next year while also raising the limit on international debt sales back to $7 billion from $3 billion in 2016. The deficit may widen to 3.5 percent to 3.7 percent of gross domestic product this year, beyond the earlier estimate of 3.2 percent, according to the Finance Ministry.

The economy is forecast to return to growth next year after two years of contraction. The Finance Ministry is reintroducing three-year budget planning and has proposed reducing the deficit by one percentage point each year to balance its books by 2020. It’s basing the plans on the assumption that oil will average $40 a barrel in 2017-2019.

The risk to Russia’s sovereign rating has “shifted from external finances toward public finances,” Fitch said last month.

“Continued commitment to contain expenditure and implementation of a credible medium-term fiscal framework could result in positive rating action,” it said. “Failure to recover from recession, coupled with significant deviation from stated macroeconomic and fiscal policy aims, would be negative.”

— With assistance by Olga Tanas

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