Russia on the brink of “junk” rating – Independent Newspaper

Russia on the brink of "junk" rating – Independent Newspaper

Insolvency Russian government forecast in two years

credit rating may be reviewed by analysts Fitch Rating in case of cancellation of Western sanctions. Photo Reuters

 

The probability of default of the Russian government in the medium and long term increased and continues to increase, according to the rating agency Fitch, which downgraded Russia’s credit rating to “predmusornogo” level last Friday. Russian economists believe that a default of the government is only possible in case of a chain of erroneous actions of the authorities – and not earlier than two years.

  
 

The international rating agency Fitch Ratings on Friday night lowered the long-term default ratings of the Russian Federation in national and foreign currencies with the index «BBB» to «BBB-» – that is, until the last stage of investment grade. Lower level are already in the so-called speculative grade, where the rate of the country’s creditworthiness is significantly lower. The outlook on Russia’s rating at Fitch called “negative”. Russian rating downgrade due to the sharp deterioratio n of the economic prospects of the country since the mid-2014 amid falling oil prices, the depreciation of the ruble and rising interest rates. “Western sanctions imposed in March 2014, continue to put pressure on the economy by blocking the access of Russian companies and banks to foreign capital markets,” – said the agency.

  
 

Fitch experts predict that in the new year, Russia’s GDP will shrink by 4%, while it was previously assumed that the decrease of 1.5%. The growth of the Russian economy will resume no earlier than 2017. Inflation is at the end of 2015 will be 8.5%, in the state Fitch.

  
 

«Russia’s international reserves declined more than we expected, and they continue to decline. Accelerate the transition to a floating exchange rate stopped falling reserves, but at the end of last year, they are less than 390 billion dollars. – That is, more than $ 120 billion. Less than at the end of 2013, and is worse than our previous forecasts, “- note analysts. Depreciation of the ruble, the volatility of the stock market and a sharp rise in interest rates from 10 to 17% dealt a serious blow to the banking sector. However, the Russian authorities have taken timely action to support the financial sector, analysts say Fitch.

  
 

In the case of reducing tension in the relations of Russia with the international community, which entails the lifting of sanctions and the resumption of Russian companies access to international capital markets, the rating outlook may be revised from “negative” to “stable”. Fitch can improve the prognosis and also in the case of a sustained recovery in oil prices coupled with a decrease in macroeconomic and financial stressors.

  
 

In Moscow, the news of the downgrade accepted without much joy. “We have long been convinced that the ratings are largely p olitical component. They are often used as a means of pressure on the economy and politics of the country, “- said Deputy Chairman of the Federation Council Committee on Economic Policy, Sergei Shatirov transmits radio” Echo of Moscow “. In his opinion, Russia’s economy is balanced enough and has a powerful accumulated reserves, including gold and foreign exchange.

  
 

In October 2014, the international rating agency Moody’s downgraded Russia’s sovereign rating to ‘Baa2′ with a negative outlook. Even earlier, the country’s rating agency downgraded Standard & amp; Poor’s (S & amp; P) to ‘BBB-’. A number of experts interviewed by news agency Bloomberg, do not exclude the possibility of further reduction by March or April. The level of “BBB-” from S & amp; P is the last stage of investment grade, in the case of its reduction to at least one stage he ceases to be an invest ment and becomes a “garbage.” In this case, some economists predict, many large investment funds that do not have the right to hold in its portfolio securities of countries with low ratings, will sell Russian stocks and bonds.

  
 

According to Bloomberg, the cost of insurance against non-payment by the Russian government bonds has increased since the beginning of the year by 92 basis points – up to 568 basis points. As a result, summarized in the news, Russia entered the top five countries with a high probability of default, ahead of countries such as Lebanon, Egypt and Portugal.

  
 

Earlier, the possibility of default and spoken American financier George Soros. For example, in an article for the magazine New York Review of Books, he noted that sanctions combined with the fall in oil prices caused the Russian economy much more damage than that expected the United States and the European Union, and led to the f inancial crisis, comparable to the 1998 crisis year. “However, in contrast to 1998, a large part of Russia’s debt is in the private sector. It would not be surprising if the crisis will lead to a default in Russia “, – quotes RIA Novosti Soros. Russian as a default, in his opinion, may cause decline in the global financial system, and particularly vulnerable at the same time will be the euro area.

  
 

The Russian default in early December forecast and analysts of the Danish Saxo Bank. “Russia is likely the most powerful storm that could lead to the fact that a state-owned companies or the government itself will selectively declare a default,” – said the chief economist at Saxo Bank Steen Jakobsen. Russian economy moved into recession and increased current account deficit even before the imposition of sanctions, the sharp drop in oil prices and the conflict with Ukraine, which has caused tension in relations be tween Russia and the United States and the European Union, he recalls. However, deterioration of external conditions aggravated by internal problems of the Russian Federation, which now acquired almost critical, a clear confirmation of which was a sharp drop in the ruble, emphasizes economist Saxo Bank.

  
 

In the period from 2014 to the end of 2015 Russian companies will have to pay more than $ 120 billion. Foreign debts. Although the foreign exchange reserves of Russia is 400 billion dollars. They can only help Russia win some time. “Law Rottenberg” (compensation from the budget of the Russian businessmen losses due to Western sanctions. – “NG”), intervention to maintain the ruble exchange rate, the current account deficit coming, a large budget deficit and an almost complete restriction of access to external capital markets mean that These $ 400 billion. can turn into an amount sufficient only to cover incidental s “- concludes Jacobsen.

  
 

With this opinion does not agree adviser to the Institute of Contemporary Development Nikita Maslennikov. According to him, the sovereign default in Russia is simply impossible. “At this level of public debt and foreign exchange reserves of Russia is not threatened default,” – he said.

  
 

The threat to the other. “And the rating agencies and financial analysts know that in Russia for more than 50% of GDP is created in the public sector, and they have a reasonable question arises: if state-owned companies at least hypothetically have any problems, who will be responsible for them?” – He argues . It is obvious that such a guarantor for them will serve the state.

  
 

However, says the deputy director of the Center for Economic Policy Research MSU Yuri Danilov, rule out the possibility of default in Russia is also impossible. “If the government will continue to pursue an inefficient economic policies, that is to do everything possible to come to a default, it could come in two years” – sums up the expert.