Fitch to cut Russia’s ratings unless budget policy tightened

PanARMENIAN.Net - Fitch may cut Russia’s long-term ratings if the Russian authorities fail to tighten budget polices, the international rating agency said on Monday, March 5, RIA Novosti reported.

“Following the expected victory of Vladimir Putin in Sunday's presidential elections, Fitch Ratings is closely monitoring how quickly the new government will act to reform the Russian economy and hasten fiscal consolidation,” the agency said in a statement, adding that Putin had made large spending commitments prior to and during his election campaign.

Russia’s rating assigned by Fitch currently stands at BBB with a stable outlook. In January Fitch downgraded its outlook on Russia’s sovereign rating to stable from positive.

“Rapid growth in spending has already widened Russia's non-oil and gas fiscal deficit to 10 percent of GDP, and pushed up the fiscal breakeven oil price to around $117/barrel for 2012. We have previously said that a failure to make progress in reducing the non-oil and gas fiscal deficit back down towards its pre-crisis target of 4.7 percent is one of the factors constraining Russia's rating at BBB,” the statement said.

The current high world prices of oil hovering above $120 per barrel cushion Russia's public finances, Fitch said.

“But in the absence of fiscal tightening that significantly cuts the non-oil and gas fiscal deficit, a severe and sustained drop in the oil price would have a damaging impact on the Russian economy and public finances and would likely lead to a downgrade,” the statement said.