Scope Ratings reviews its ratings either yearly, or at least every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope performs monitoring reviews to determine whether outstanding ratings remain proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly-rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Russian Federation (BBB/Stable; S-2/Stable) on 19 May 2021. This monitoring note does not constitute a rating action nor does it indicate the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated ratings history can be found on www.scoperatings.com.

Key rating factors

Russia’s long-term ratings of BBB/Stable are underpinned by the following credit strengths: i) the sovereign’s robust public finances and conservative fiscal policy with an improved policy framework following the introduction of the fiscal rule, underpinned by low general government debt and sizeable government liquid assets, which strengthen fiscal flexibility; and ii) Russia’s strong external economic risk-profile underpinned by high foreign reserve adequacy, a robust net external asset position and a commitment to inflation-targeting, alongside a flexible exchange-rate regime. These factors increase the country’s resilience to external shocks and mitigate the economic impact of potential further tightening in international sanctions. Challenges relate to: i) the economy’s low growth potential in view of adverse demographic trends and a weak investment environment, with a lack to date of more profound reform in achieving a diversification away from the dominant role of the oil and gas sector in the economy; ii) weak governance, which weighs on business confidence and leads to persistent underinvestment; and iii) the economy’s high vulnerability to geopolitical risk, which has brought ramifications such as more restricted international market access for private and public sectors and has driven a deterioration within an already weak business climate by discouraging investment.

The Stable Outlook represents Scope’s view that risks to the ratings over the next 12 to 18 months are considered balanced. The ratings/Outlooks could be upgraded if, individually or collectively: i) the economy’s growth potential improves as a result of structural reform and/or improvement is seen in governance indicators, supporting higher private investment; ii) geopolitical risks, including economic and financial sanctions, are significantly eased, reducing constraints on Russia’s growth potential and market access for Russian entities; and/or iii) a significant further build-up of fiscal and external buffers is seen beyond Scope’s current expectations.

Conversely, the ratings/Outlooks could be downgraded if, individually or collectively: i) persistent deterioration in Russia’s public finances leads to a significantly higher public debt-to-GDP ratio, such as due to materialisation of contingent liabilities; ii) the economic policy framework, including policy credibility, materially weakens, undermining the growth outlook; and/or iii) geopolitical risks escalate and/or additional sanctions are put into place that weigh significantly upon Russia’s financial or macroeconomic stability.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Rating Methodology: Sovereign Ratings, 9 October 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Levon Kameryan, Senior Analyst

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