S&P leaves Russia’s credit rating intact despite coronavirus crisis

While most oil-exporting nations saw international agencies knocking down their sovereign credit ratings amid the crisis spurred by the Covid-19 outbreak, S&P Global Ratings confirmed Russia’s rating at BBB- with a stable outlook.

In its report on Friday, the agency said that the Russian economy is expected to contract by 4.8 percent this year due to lower oil prices, OPEC+ cuts, and the fallout from the pandemic. However, the country is expected to weather those economic shocks, thanks to a flexible exchange rate and fiscal balance, while their impact on the economy will be more modest than in developed countries.

In more than 80 percent of cases, international rating agencies opted to downgrade the credit ratings of other nations that export energy resources, Russian Finance Minister Anton Siluanov said as he commented on the S&P decision. The minister said that conservative budget planning, inflation targeting policy, and strict adherence to the budget rule allowed the Russian economy to cope with external challenges.

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“S&P Global Ratings decision… serves as further confirmation that the government’s policy ensures macroeconomic stability against an extremely volatile external environment,” he told reporters.

While “stable” means that a rating is not likely to change, the analysts said that the outlook could still be reconsidered in both directions. S&P may take a negative rating action if it sees a looser fiscal framework amid falling oil prices, while tighter sanctions may also exert downward rating pressure. A positive rating action will result if Russia’s GDP increases at rates comparable with those in countries with similar income levels and faster-than-expected accumulation of fiscal buffers, the agency noted.

The Russian economy has been under tremendous pressure during the coronavirus outbreak, as quarantine measures and partial lockdowns halted most business activity for weeks. In April, when the restrictions were in force, Russia’s GDP fell by 12 percent year-on-year, eliminating the modest economic growth seen during the first three months of 2020. As coronavirus-related measures were eased, economic activity picked up, slowing the steep decline. In June, GDP fell 6.4 percent, while the official manufacturing purchasing managers’ index (PMI) almost reached levels signaling growth in factory output, rising to 49.4, up from 36.2 in May and 31.1 a month earlier.

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