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Fitch affirms Russia at ‘BBB,’ outlook stable

Russia's 'BBB' IDRs are supported by its very strong external balance sheet and the lowest level of general government debt in the peer group

© Anton Novoderezhkin/TASS

MOSCOW, December 4. /TASS/. International ratings agency Fitch said it had affirmed Russia’s long-term foreign-currency Issuer Default Rating (IDR) at 'BBB' with a stable outlook.

Russia’s short-term IDR was confirmed at F2.

"Russia's 'BBB' IDRs are supported by its very strong external balance sheet, the lowest level of general government debt in the peer group," the agency said.

Those factors were countered by geopolitical risks, weak governance relative to peers, low potential GDP growth and high commodity dependence, it said.

The agency also noted that the reported build-up of Russian troops along the Ukrainian border underscores geopolitical and sanctions risk. However, experts believe that the strategic calculation for an actual invasion remains unclear. Therefore, Fitch’s base case does not envisage that the situation would escalate into an outright war with Ukraine.

At the same time, Fitch sees high risks of additional anti-Russian sanctions. However, it does not expect broad-based sanctions on the energy sector or which prevent Russian banks from transacting in US dollars, or hamper the servicing of existing sovereign debt.

According to the agency, US sanctions imposed this April, which prohibited US purchase of ruble-denominated primary debt, had a muted impact, partly due to already limited foreign participation in the primary market, and the capacity of Russian banks to absorb government debt.

Fitch projects GDP growth to recover to 4.4% in 2021, driven by a rebound in domestic demand, and then to slow to 2.6%. The growth will further slow down to 2.9% in 2023.

Fitch forecasts a further 75bp interest rate rise in December to 8.25%.

Inflation is expected to fall to 4.4% at the end of 2022, and return to the 4% target in 2023.

Russian response

The Russian finance ministry is positive about Fitch’s decision to affirm Russia’s long-term foreign-currency Issuer Default Rating (IDR) at 'BBB' with a stable outlook, Russian finance minister Anton Siluanov said.

"We are positive about today’s decision by Fitch Ratings to affirm Russia’s long-term foreign-currency IDR at BBB with stable outlook. Among the factors that justified this decision, the agency named the lowest level of general government debt in the peer group, the growth of fiscal reserves and a reliable macroeconomic structure, created by the Russian government and the Bank of Russia," he told journalists.

"The combination of the above-mentioned factors guarantees the resilience of Russian economy in the face of potential external shocks," the minister added.

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