WHAT SANCTIONS? Russia’s investment rating just got upgraded

On February 23, 2018, Standard and Poors raised its estimation of Russia’s sovereign credit rating from BB+ to BBB-. This is good news for the Russian Federation as it continues to realign its economy in response to the various sanctions that the West, mainly the United States, keep imposing on the nation.

Under President Vladimir V Putin’s leadership, the country has gradually improved since the peak of the sanctions crisis near the end of 2015. The rating change means that Russia is no longer considered as “junk” investment territory. The Financial Times reports that S&P attributed the upgrade to the country’s “prudent policy response” taken in response to the sanctions.  The analysts further said this:

The ratings are supported by Russia’s commitment to conservative macroeconomic management, its strong net external asset position, low government debt, and relatively high monetary flexibility, including the flexible exchange rate regime. The ratings are constrained by our assessment of Russia’s economy, which remains dependent on revenues from oil and gas exports, as well as by wider institutional and regulatory weaknesses. Further constraints include geopolitical tension, and resulting international sanctions, creating a drag on Russia’s long-term economic growth prospects.”

The S&P rating lift takes Russia into what is considered stable investment territory. Another analytics agency, Fitch Ratings, affirmed Russia’s long term foreign and local currency issue default ratings, also at “BBB-” with Positive Outlook:

Russia’s ratings balance a strong sovereign balance sheet, robust external finances and an improved policy framework against weaker macroeconomic performance than peers, structural weaknesses (commodity dependence and governance risks) and geopolitical tensions.

The Positive Outlook reflects continued progress in strengthening the economic policy framework underpinned by a more flexible exchange rate, a strong commitment to inflation-targeting and a prudent fiscal strategy. This policy mix is contributing to improved macroeconomic stability and, together with robust external and fiscal balance sheets, increases the economy’s resilience to shocks.

The federal budget deficit is estimated to have narrowed to 1.5% of GDP in 2017, less than half the 2016 outturn and well below the ‘BBB’ median. The non-oil deficit shrank to 7.9% of GDP in 2017 from 9.1% in 2016. Fitch forecasts that Russia will record a fiscal deficit of 0.6% in 2018 (outperforming the budgeted 1.3% deficit), reflecting higher-than-budgeted oil prices, continued non-oil and gas revenue growth and expenditure restraint. The current official 2019 primary balance forecast should be achieved comfortably, with Fitch forecasting surpluses at both the primary and overall levels. (Emphasis mine)

The rest of the report is similarly quite positive. It is an interesting point that many Russian businesses are grateful for the opportunities created by the sanctions that were meant to hurt and punish the Russians for whatever cause célèbre the West can dream up.

Whatever doesn’t kill you only makes you stronger, doesn’t it?