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Moody’s confirms Russia’s Ba1 sovereign rating with negative outlook

April 23, 0:40 UTC+3 MOSCOW
The agency concluded the review for downgrade that was initiated on March 4, 2016, and assigned the rating a negative outlook
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MOSCOW, April 23. /TASS/. The Moody’s international ratings agency has confirmed Russia's Ba1 government bond and issuer ratings.

The agency concluded the review for downgrade that was initiated on March 4, 2016, and assigned the rating a negative outlook.

The decision to confirm Russia’s rating was caused by the economy’s "resilience to the renewed drop in oil prices early this year thanks to an effective blend of macro policy responses" and the fact that "the fiscal adjustment underway appears sufficient to reduce the 2016-18 deficits to a level that can be financed in the domestic capital markets and through fiscal reserve drawdowns."

"The negative outlook reflects the likely further erosion of the government's fiscal savings in the context of Moody's medium-term projections for oil prices," the agency said.

"Moreover, a set of policies that would address the economy's low growth potential has been slow to emerge, while the election calendar over the next two years will likely interfere with the implementation of politically unpopular reforms that could achieve a more fundamental budget consolidation," it said.

"Russia's country ceilings, which include its Ba1/NP country ceilings for foreign currency debt, its Ba2 country ceiling for foreign currency deposits and its Baa3 country ceiling for local currency debt and deposits, remain unchanged," the statement said.

"Given the budget consolidation measures being pursued and using Moody's own oil price assumption of $33/barrel for 2016, Moody's expects the federal budget deficit to increase to roughly 3% of GDP this year, followed by deficit roughly half that size in 2017 as oil prices rise toward the government's assumed level of $40/barrel, narrowing the gap between Moody's oil price forecasts and theirs," it said.

"More substantial fiscal adjustment will depend on the political willingness to undertake reforms in the pension system and elsewhere in the public sector," Moody’s said.

"The confirmation of the rating also reflects Moody's assessment of the availability of domestic financing for the budget deficit in view of ongoing international sanctions that have limited international debt issuance, and expectations that the government can avoid an early depletion of its Reserve Fund this year," it said.

"The government's original financing plan for 2016 was to rely on the bond market to finance part of the deficit, or R1 trillion in gross terms, and to use the Reserve Fund for almost all of the remainder," the agency said.

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