Standard & Poor’s international rating agency lowered Russia’s credit ratings for the first time since the beginning of the financial crisis. The ratings were presumably lowered due to a sudden reduction of international reserves. The agency has already lowered the forecasts on the Russian ratings several times since September of this year. This time, however, the agency lowered the rating itself. Furthermore, S&P’s forecast for the Russian economy on the whole is unfavorable too: the economic growth will become a lot slower, whereas the budget will get deficit-ridden. Experts do not think that the lowered rating will affect the Russian economy much because agencies can only follow, but not predict the conjuncture.
Standard & Poor’s lowered Russia’s long-term and short-term credit ratings on foreign currency liabilities from ВВВ +/ А -2 to ВВВ / А -3. The long-term sovereign credit rating on national currency liabilities was lowered too – from A- to BBB+. The estimation of the risk of currency transfer and conversion for Russian non-sovereign borrowers was cut from BBB+ to BBB. The short-term rating on national currency liabilities remained unchanged (A-2). The general forecast on the ratings is negative, i.e international experts believe that the fall has not reached its bottom. Therefore, Russia has not proved to be capable of leaving the group of developing nations with ratings not higher than BBB+. The group includes such countries as Bulgaria, Latvia, Kazakhstan, Romania, Hungary and others.
Russia ’s international reserves have dropped from $583 to $455 billion from August of this year, the agency reminds. The reserves were used on natural anti-crisis goals, including the refinancing of foreign debts of Russian companies and banks. Russia had to compensate the outflow of capital and support the ruble rate on a stable level.
Russia ’s Central Bank does not seek any excuses and says that the international reserves of the Russian Federation dropped by $71.47 billion in October and by $28.86 in November. The funds were mainly spent on currency interventions to support the ruble against the background of the outflow of capital. The situation began to improve when the Central Bank announced its intention to gradually reduce the rate of the national currency.
Standard & Poor’s gives Russia credit for the reasonable spending of the export profit. It makes sense to spend the reserves not to let the ruble lose a lot of its value, the agency says.
S&P also predicts a slowdown in the economic development. In addition, Russia’s budget for 2009 will most likely be deficit-ridden on account of lower taxes and plunging oil prices.
Russian experts say that the decision to lower Russia’s credit ratings was predictable and that it would not affect the state of affairs in the Russian economy.
“This decision will not show a negative influence on the market. S&P simply reflected conjunctural changes. Moody’s and Fitch have not changed their ratings yet, although their reaction is very likely to follow,” Pavel Pikulev, an analyst with Trust Investment Bank said in an interview with the Vremya Novostei newspaper. “If agencies lower the ratings of private companies, the latter may have to deal with some problems,” the specialists added.
Credit ratings express an opinion of Standard & Poor’s regarding the capability and the readiness of an issuer to execute its financial obligations properly and timely. Credit ratings can be assigned either to an issuer – a sovereign government, regional and local power agencies, corporations, financial institutions, insurance companies, etc) or to a separate debt liability.
In Russia, S&P assigns ratings on the international scale and on the national scale. In addition to an extensive experience with national scales of developed financial markets, such as Canada, France and Sweden, Standard & Poor’s uses national scales in eight developing countries: Argentina, Brazil, Kazakhstan, Mexico, Russia, Taiwan, Uruguay and Ukraine.