Moody’s Investor Services, one of the large rating agencies, today in report reaffirmed Russia’s junk bond Ba1 rating, and said watch the price of oil for future changes in investor outlook in Russia. Ba1 is one notch below investment grade. Russia lost its investment grade rating during the economic stress of the last several years due to Western sanctions over Russia’s actions in Ukraine and the collapse in the price of crude oil, which together drove the country into a recession. Moody’s expects growth of 1.5% for the next two years. The agency stressed increased productivity and diversifying the economy could make Russia grow faster.
“… Russia’s economy entered a recovery path last year that will gain pace in 2017 … Despite the significant negative impact from the oil and gas price shock since mid-2014, Russia’s fiscal and debt metrics look favorable in comparison to its rating peers. Moody’s forecasts that real GDP growth will increase by 1.5% per year in 2017 and 2018, with private consumption and investment spending supported by gains in household real incomes and gradually easing monetary policy. Still, an ageing population is among the constraints expected to prevent Russia’s potential growth from expanding in the absence of fundamental structural reforms.
Moody’s expects Russia’s general government deficit-to-GDP ratio to decline in 2017-18 as a result of fiscal consolidation and stronger revenue prospects, which in turn will lead to only a slight increase in the general government debt-to-GDP ratio …
Moody’s projections for deficit reduction are somewhat more favourable than that of the government’s three-year plan, partly because the rating agency’s revenue assumptions are based on higher oil price forecasts …, an excerpt from the Moody’s report, from Barron’s.