S

By Staff
|
Google Oneindia News

MOSCOW, Sep 4 (Reuters) Standard&Poor's upgraded Russia's foreign currency rating by one notch to BBB+ on Monday as the country reaps a bonanza from high oil prices, but it still warned of risks from budget spending and upcoming elections.

The rating agency also lifted Russia's local currency rating to A-minus from BBB-plus. The outlook on both ratings is stable, meaning a further upgrade is not likely soon.

''The upgrade is based on ongoing improvements in Russia's foreign exchange reserves coverage and the strengthening general government balance sheet,'' said S&P credit analyst Moritz Kraemer.

Russia paid back its .5 billion debt to the Paris Club of sovereign creditors ahead of schedule last month while its gold and forex reserves, the world's third largest, have reached 8.5 billion.

S&P forecast that central bank reserves would reach 5 billion this year, a fourfold increase since 2003, and that the general government debt would fall below 10 percent of gross domestic product next year.

''Russia's economy is still benefiting from the global oil price boom, while policymakers continue to handle concomitant challenges to macroeconomic stability in a circumspect manner,'' the agency said.

However, the agency said that a softening of Russia's fiscal policy ahead of parliamentary and presidential elections in 2007 and 2008 represented a risk to macroeconomic stability.

''The expansionary 2007 election budget exemplifies the risks,'' the agency said in a statement, warning that a further fiscal softening would create downward pressure on its ratings.

The government of the world's second biggest oil exporter approved a 2007 draft budget last month with a 24.5 percent increase in spending over 2006, boosting pay for public sector workers and the military and spending on pensions.

FISCAL LOOSENING S&P said fiscal loosening may force the central bank to allow further appreciation of the rouble to curb inflation, undermining the competitiveness of domestic industry.

The agency said, however, that upcoming elections were not likely to bring any surprises, with President's Vladimir Putin chosen successor expected to win the presidency and loyalists to retain control over the parliament.

''This should help to contain further populist spending commitments,'' the agency said.

Analysts said the upgrade from S&P, which traditionally takes a more conservative line than other agencies, came as a surprise. The agency had earlier said Russia's redemption of its Paris Club debt would not mean an automatic upgrade.

''This is something of a surprise given that S&P appeared to be playing down the chances of a sovereign upgrade until recently,'' said Tim Ash, emerging market economist at Bear Stearns in London.

Fitch Ratings upgraded Russia's sovereign foreign currency credit rating to 'BBB+' from 'BBB' in July. The other major rating agency, Moody's Investors Service, rates Russia Baa2.

''Russia is going to be a debtless country in a few years.

Unless something radical happens on oil prices we can expect more upgrades,'' said Mika Erkkila, senior analyst at Nordea.

Analysts said the upgrade may trigger a rally in Russia's Eurobonds.

''We believe that the upgrade should result in tightening of the Russian spead at least to the May minimum of 90 basis points over U.S. Treasuries,'' said Alexander Zotkin, Zenit Bank analyst.

The benchmark Russia-30 Eurobond was up 0.25 points in price to 111.625 at 0725 GMT to yield 5.8 percent while the yield spread of Russia's portion of the EMBI+ index over U.S. Treasuries was down 2 basis points to 106.

REUTERS CS DS1540

For Daily Alerts
Get Instant News Updates
Enable
x
Notification Settings X
Time Settings
Done
Clear Notification X
Do you want to clear all the notifications from your inbox?
Settings X
X