ISSN 2330-717X

Rating Forecasts: Right Or Wrong? – OpEd

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By Polina Chernitsa

Russia retains its BBB credit rating with a stable forecast despite capital flight earlier this quarter. This comes in a statement by the Fitch international rating agency. According to agency experts Russia’ macroeconomic indices look better than those of many EU countries, and domestic political stability and high fuel prices could eventually propel the country’s credit rating to A.

Fitch analysts point out that Russia boasts a major foreign trade surplus, almost no state debt and low inflation. The country’s currency reserves are nearing $500 billion – 4 percent up from the year before. In terms of the state debt/GDP ratio Russia is now ahead of the US, Japan, France and many other developed nations. Sergei Khestanov, a Moscow-based economist, still believes that, to attain the A credit rating, Russian needs to restructure its economy:

“First of all, Russia is ahead in terms of almost negligible volume of state debt. On the other hand, even though inflation is at a record low, it is still higher than in the EU. We should also have in mind the fact that Russia owes much of its good economic figures to high oil prices”.

Experts believe that many Russian companies remain seriously undervalued, which is also brushing off negatively of its economic performance figures in general. Sergei Khestanov again:

“The shares of almost all of our major companies generally cost less, compared to foreign companies’ stocks. This is really good news for foreign investors who are buying up Russian stocks on hopes that, somewhere down the road, they will go up”.

Even though Fitch on Monday cut the outlook on Russia’s debt from positive to stable due to “increased political uncertainty”, Russian bourses opened looking up with experts confident that the rating will remain stable.

There is a growing sense of falling credibility in the rating agencies which, snoozing on the 2008-2009 crisis, are now working hard to play it safe. Many experts are also doubtful about the rating methods used by these agencies, especially after the US saw its credit rating lowered by S&P, which explained it rather by the US authorities’ inability to reach agreement on changing the country’s financial policy, than by America’s financial woes.

We asked the prominent Moscow based economic expert Mikhail Delyagin to comment on S&P’s recent decision to cut the credit ratings of many European countries:

“The agencies take a generally formal look at economic indices, that’s why they often err, with serious consequences for all. What I’m saying is that their outlook may not be necessarily right. Besides, locking at what S&P did on Friday, it looks like some agencies are being used as global cooperation tools, serving the interests of certain business groups”.

VOR

VOR

VOR, or the Voice of Russia, was the Russian government's international radio broadcasting service from 1993 until 2014, when it was reorganised as Radio Sputnik.

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