– Fitch Ratings on Monday lowered the rating outlook on Russia as political uncertainty increased and the global economic outlook has worsened since it confirmed the rating in September.
The rating outlook was downgraded to Stable from Positive, while the long-term foreign and local currency Issuer Default Ratings were affirmed at ‘BBB’.
“The likelihood of an upgrade has receded and the balance of risks is better reflected by a Stable Outlook,” said Charles Seville, Director in Fitch’s Sovereign group.
In the long-term, democratic development that leads to better governance could be positive for Russia’s ratings, but in the short term, uncertainty has increased.
The government under pressure is less likely to carry out a fiscal adjustment, to reduce the non-oil fiscal deficit towards its pre-crisis target of 4.7 percent of GDP. Although Russia has fiscal buffers in the shape of its sovereign wealth funds, the underlying position of the public finances has deteriorated.
In case of a renewed downturn in the global economy, Russia would have less room for a fiscal stimulus than it did in 2008, the agency noted. Such global economic risks have increased given the crisis in the Eurozone, which led Fitch to revise down global growth forecasts in the fourth quarter of 2011.
A narrowing in the non-oil and gas budget deficit, a sustained reduction in inflation or significant structural reforms that improve the business climate could lead to a rating upgrade. On the other hand, a notable decline in oil prices or a political shock could trigger a negative rating action.
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