Russia faces an uphill task to avoid a downgrade of its sovereign credit rating below investment grade because the government hasn’t yet committed to overhauling the economy, according to former Finance Minister Alexei Kudrin.
“A lot now depends on the government and the president and whether they announce a reasonable, adequate program to soften the crisis and restructure the economy,” Kudrin, who was finance minister for 11 years, said in an interview in Davos, Switzerland. If the countermeasures are appropriate, “I think there’s even a chance to hold on to the rating.”
Falling oil prices and sanctions over President Vladimir Putin’s actions in Ukraine have pushed the economy of the world’s biggest energy exporter to the brink of a recession. Moody’s Investors Service last week reduced the country’s ranking to one step above junk, matching the credit grades assigned by Standard & Poor’s and Fitch Ratings. S&P said Jan. 16 it will decide whether to lower Russia further by the end of this month.
Cutting Russia to junk status would be a “big mistake,” Russian Deputy Prime Minister Arkady Dvorkovich said in a separate interview in Davos, citing its low level of public debt. A decision by S&P isn’t a “very big concern because the international markets are closed for us,” VTB Group chief Andrey Kostin said.
“Even if oil prices rise to $50-$60 a barrel that would be a good level for future growth,” Kudrin said. “But the growth will be very weak without structural reforms and the improvement of institutions.”The ruble has weakened about 48 percent against the dollar in the past 12 months as oil prices slumped to the lowest since 2009. About half of Russia’s budget revenue comes from oil and gas taxes.
With oil prices at $60 a barrel, the economy may contract about 4 percent this year and have a budget deficit of more than 3 percent of gross domestic product, according to Finance Minister Anton Siluanov.
