UPDATE: Fitch confirms Russia’s credit rating at BBB with stable outlook

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MOSCOW, Jan 31 (PRIME) -- International rating agency Fitch has affirmed Russia’s long-term foreign and local currency ratings at BBB with a stable outlook, the agency said Friday.

The short-term rating has been affirmed at F3 and the country ceiling at BBB+.

The country’s deficit recorded at 0.5% of gross domestic product (GDP) in 2013 will exceed the target for this year as its non-oil revenues are overestimated for 2014, the agency said. But the ruble value of oil revenues, the basis of the country’s budget, will increase due to the ruble depreciation, which Russia has been facing since the start of the year, the agency said.

Fitch also expects Russia’s GDR to rise 2% in 2014, driven by private consumption, but does not expect a dynamic recovery amid a shrinking labor force and lack of structural reforms, which constrain long-term growth. Russia’s GDP grew 1.4% in 2013, half of the official forecast at the start of last year.

The country’s central bank plans to switch to full inflation targeting in 2015 and is prioritizing its inflation target at 4.5% in 2014 and 5.0% in 2015 over stimulating growth, and expects that more flexible ruble will help absorb external shocks. The ruble is likely to become more volatile as interventions stop and is liable to depreciate given the balance of payments fundamentals, Fitch said.

Russia’s current account balance is narrowing and it is likely to move into deficit in 2015. The central bank estimated its surplus at $33 billion in 2013. The oil and commodities outlook precludes substantial export growth.

The country commodity dependence is still high, with oil and gas accounting for 67% of goods exports and half of federal government revenue, exposing the balance of payments and public finances to external shocks.

Domestic banks capital cushions are thinning, although remain above regulatory norms, and overall non-performing loans are 6% of lending. The central bank withdrew 32 banking licenses, all from small banks, in 2013. The economic slowdown and growing consumer indebtedness has led to some deterioration in asset quality. Partly in response to regulatory tightening by the bank, unsecured retail lending growth has slowed to 28% from a peak of 44% in mid-2012.

The agency keeps its outlook as stable, saying that positive rating actions may result from a reduction in vulnerability to oil price shocks, either via fiscal reform or gradual building of the Reserve Fund as a buffer. The agency also said that a longer track record of lower inflation and management of the flexible exchange rate regime would reduce vulnerabilities to external shocks.

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