Fitch: structural reforms allow Russia to manage crisis, external shocks better

Russia is likely to keep its sovereign rating by Fitch even in case of new US sanctions thanks to structural reforms implemented by the Russian authorities in the past few years. Currently, the country has BBB- with a positive outlook, while ratings below this level are considered to be off the investment grade.

US sanctions will weigh on Russia's economic growth but are unlikely to imminently deprive Moscow of its investment grade rating, says Reuters citing Director of Fitch Ratings Sovereigns group Erich Arispe. ''Growth is likely to be the main victim of sanctions,'' he said, adding that despite the improvements and efforts the authorities were making to improve the business operating climate, the sanctions uncertainty created a challenge for people to invest in Russia.

The agency expects Russia's economic growth to slow to 1,5% in 2019 from 2,0% this year. However, the indicator is supposed to pick up to 1,9% in 2020. As for the ruble, it is likely to remain volatile and under pressure near current levels. According to Fitch, the Russian currency will finish this year at 68 per dollar and stay around 67 in the next two years.

In the middle of August, Fitch affirmed Russia's sovereign credit rating at BBB- with a positive outlook, which is the same as for Hungary, Romania, India and Oman. Lower ratings are considered to be off the investment grade. Earlier, the agency claimed that Russia's rating would be one notch higher without sanctions. Fitch has kept Russia's rating and the outlook unchanged since September 2017. The next check-up is scheduled for February 2019.

Structural reforms implemented by Russia's Central Bank and Ministry of Finance since 2014 have played an important role in overcoming stagnation. Photo: kremlin.ru

According to Arispe, Russia is likely to keep its investment grade even if new sanctions are applied. ''For now our baseline scenario is that we don't see an imposition of sanctions… cutting the sovereign from making debt payments. We also don't expect sanctions cutting the state-owned banks from the dollar markets.''

Arispe considers that structural reforms that Russia's authorities have implemented since 2014 have played an important role in overcoming stagnation. The Central Bank has let the ruble float freely but managed to rein in inflation. Besides, a fiscal rule introduced by the Ministry of Finance insulates the economy from oil price volatility and helps to build up the reserves. ''This policy framework put in place between 2014 and now is actually allowing Russia to manage the crisis or external shocks better,'' said Arispe.

By Litvina Anna

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