On January 22, 2010, Fitch Ratings has revised the Russian Federation’s ratings Outlook to Stable from Negative.

Fitch Ratings changed its assessment of the Russian economy from “negative” to “stable,” affirming long-term domestic and foreign currency issuer default ratings as BBB. Short term foreign currency issuer default rating was set at F3, while the country ceiling indicator was fixed at BBB+.

The head of Emerging Europe in Fitch’s Sovereigns team Edward Parker commented that the revision of ratings shows the agency’s heightened confidence in Russia’s economic stability. Positive factors bearing on the decision to revise the ratings included smaller inflation, lower budget deficit for 2009 than originally projected, increasing oil prices, rising levels of capital inflow in the private sector, and a reduction of risk in the banking sector.  

Economic analysts at Fitch are convinced that banking risks have been allayed as a result of the overall stabilization of the Russian economy. The banks are also able to handle greater losses and keep the situation under control. At the same time, Fitch is worried about the levels of problem loans that the banks hold. In October 2009, non-performing and restructured loans accounted for 19 percent of Russian banks’ assets. The share of problematic loans is expected to reach 25 percent in 2010. There is also doubt as to the ability of banks to meet credit demand. In 2009, the volume of private sector credit decreased by 4.7 percent.

The Central Bank of Russia recently reported that private sector capital inflows in the last quarter of 2009 totaled USD 11.6 billion, helping to offset the outflows of USD 64 billion in the first three quarters of the year. Gross outflow of private sector capital (less FDI) was the lowest since 2001. Russia’s private sector companies made USD 44 billion in debt payments in 2009.

State spending figures also showed improvement. The federal deficit in 2009 was 5.9 percent of the GDP, significantly below the expected figure of 7.7 percent. Considering improved budget results and higher oil prices, Fitch has revised 2010 deficit forecast from 6 percent to 5 percent.    

The growth of the GDP in Russia resumed in the second quarter of 2009 – increasing at a rate of 1 percent per quarter. The pace of recovery in Russia is slow. Fitch economists note that Russia sustained one of the worst recessions of all countries in the world. The country’s GDP went down by 8.5 percent. Only five other countries, including the Baltic states, Armenia, and Ukraine experienced more significant economic problems. For 2010, the growth of the GDP, according to Fitch estimates may be as high as 4.5 percent, although the figure can be adjusted downward in view of weak private consumption during the fourth quarter of 2009.  

Economists agree that the recession gives Russia a chance to combat inflation. Also, the country can advance towards a more elastic system for setting the currency exchange rate. In December, inflation was 8.8 percent. In March of 2009, inflation was at 14 percent. According to Fitch analysts, inflation in 2010 will be 7.5 percent. The agency also forecasts that the Russian government will draw USD 42 billion from the state reserve fund.