MOSCOW, February 21. /TASS/. International rating agency Moody’s has revised downwards Russia’s sovereign debt rating to Ba1 (speculative) from Baa3, offering the continuing crisis in Ukraine and dwindling oil prices as the main reasons. The Russian Ministry of Finance promptly replied the decision was politically motivated.
Moody’s is the second world rating agency after Standard&Poor’s to have downgraded Russia’s sovereign rating to the speculative level. Fitch has kept its investment level rating unchanged for the time being.
"The continuing crisis in Ukraine and the recent oil price and exchange rate shocks will further undermine Russia's economic strength and medium-term growth prospects, despite the fiscal and monetary policy responses," Moody’s said.
Sovereign debt ratings indicate a country’s ability to honor its liabilities on time. The lower the rating, the harder the access to international money markets. Russia has no immediate plans for foreign borrowings, though.
The sovereign rating’s fall usually entails a decline in those of individual companies. Many of potentially borrowers, such as Rosneft, Sberbank and the VTB, are already under sanctions and have no opportunity to borrow on foreign markets anyway.
Russia’s response
Finance Minister Anton Siluanov dismissed Moody’s decision as politically motivated. He argues that the "exhaustive" information about the condition of Russia’s economy the agency had at its disposal must have been ignored.
"I suspect that in making this decision to lower the rating the agency was guided by political factors above all," Siluanov told the media. "I believe that Moody’s rating is not just overly negative, but also based on an extremely pessimistic forecast, unparalleled these days," Siluanov said.
In its statement Moody’s pointed to the negative effects of "fiscal pressures and the continued erosion of Russia's foreign exchange reserves in light of ongoing capital outflows and restricted access to international capital markets." Also, Moody’s recalled high and growing inflation.
"The agency predicts this year’s capital flight in an amount of 272 billion dollars, the DGP’s decline by 8.5% over two years and this year’s inflation above 22% These estimates are in stark contrast to the economic forecasts of the International Monetary Fund, the World Bank and international banks," the Russian Finance Ministry said in a statement.
Ability to resist external shocks
Moody’s argues that the conflict in Ukraine may force the Russian authorities take certain action that may "directly or indirectly undermine timely payments on external debt service." Also, "the assignment of the negative outlook reflects the potential for more severe political or economic shocks to emerge, related either to the military conflict in Ukraine or a renewed decline in oil prices, which would further impair Russia's public and external finances," Moody’s argues.
The Russian Finance Ministry disagrees. "In recent months Russia has demonstrated resistibility to unprecedented external shocks, in the first place, the steep and considerable fall in the price of oil."
Moody’s revision of Russia’s rating followed last week’s four-party talks by the leaders of Russia, France, Germany and Ukraine in Minsk that produced a ceasefire arrangement in Donbass.
The agency suspects that the Russian government may face "substantial difficulty in dealing with a wide range of economic, fiscal and monetary challenges" and speculates that the decision to lower the key rate to 15% may trigger further devaluation of the rouble.
The Ministry of Finance recalls in response that the rating’s revision followed even though the rouble has firmed 11% against the dollar since the beginning of February, which is the best parameter among the emerging markets’ currencies. The situation on the raw materials markets was regaining stability, the Finance Ministry said, oil prices recovered by 23% and the yields on rouble-denominated government bonds were down by 300 basis points.
The Finance Ministry is certain that Moody’s opinion should not cause an extra major impact on the money market.
"For participants in the internal debt market, which we currently consider as the sole source of borrowing, the issuer’s foreign currency rating is of smaller significance. The two other major rating agencies have preserved their evaluations of Russia’s national currency liabilities at the investment level BBB- (S&P lowered to the speculative level only Russia’s foreign currency rating - TASS)," the Finance Ministry said.