International rating agency Fitch has confirmed long-term issuer default ratings (RDE) for the obligations of Russia in foreign and local currency at BBB from negative outlook, according to a press release agency.

short-term RDE the Russian Federation in foreign currency affirmed at F3, the country ceiling rating - BBB.

The Russian economy and performance balance of the country has suffered in the global financial crisis, and despite signs of stabilization of economy and finance in March this year, the risks to the creditworthiness of the Russian Federation are saved, - said the head of the analytical group Fitch sovereign ratings of European countries with developing economies, Edward Parker.

Russian GDP fell in the first quarter of 2009 to 10.1% annualized, which is significantly worse than those of other major emerging markets. The international reserves of Russia decreased by about $ 200 billion over the past 12 months.

The fact that the global crisis has had a significant impact on Russia is due to three main factors. First, Russia's economy has been significantly exposed to shocks in global commodity markets, as well as in international capital flows. Second, monetary policy was too weak, the rate of growth of external and domestic borrowing - redundant, and the economy was overheated before the start of the crisis. And third, the problems were compounded by structural weaknesses, including the diversification of the economy, a weak banking sector, high inflation, a difficult business climate in the country, etc.

Fitch predicts that Russia's real GDP to decline by 7% in 2009, before the increase of 3,5% in 2010, which will facilitate trade cycle, the basic factors, higher oil prices and a significant measure of fiscal incentives . However, the duration and depth of a recession are a risk and will have an impact on the quality of bank assets, public finance and, potentially, result in political pressure on the Russian authorities.

Fitch considers the banking sector as a key disadvantage of creditworthiness. According to the baseline scenario, the agency predicts an increase depreciated loans of up to 25% of all loans by the end of 2009, which would require a recapitalization in the amount not less than $ 22 billion in addition to the infusion of capital into $ 24 billion held in the 3rd quarter of 2008. Central Bank of Russia faces a difficult task to ensure sufficient liquidity in the banking sector, while reducing inflation to the level expressed by single digits, as well as the need to avoid excessive volatility of the ruble.

This year, the Russian private sector, pending repayment of $ 137 billion on external debt, which may prove difficult to refinance at current market conditions. It is estimated Fitch, level in extension of the 1 st quarter of 2009 amounted to 64%. The outflow of capital and the dollarization of bank deposits abated after the ruble devaluation in February, but they may gain in the event of a resumption of financial stress. Nevertheless, the whole country has a strong external liquidity position with reserves of more than $ 400 billion and a net external creditor in the amount of about 17% of GDP at the end of 2008. For comparison, the country ranked in the category of BBB are median net debtor position for 10 years at a rate of 13%.

key positive rating factor is the situation of public finances. At the end of 2008, total public debt stands at only 8% of GDP, which is significantly lower than the median figure for countries with a ranking in the category of BBB for 10 years at 35%.

Moreover, Russia has $ 184 billion in aggregate in the Reserve Fund and Fund of national well-being (which is at the end of June was equivalent to about 15% of projected GDP for 2009), and this provides a strong liquidity position to finance the budget deficit and fiscal policy in the context of the current cycle.

However, Fitch anticipates that the recession, lower oil prices and crisis measures will ensure that instead of a surplus of 4.1% of GDP in 2008, the budget will be executed with a deficit at 8.5% in 2009 and 6 % in 2010. Even when returning to the Eurobond market in the next year's reserve fund will be depleted in 2010, and in the medium term would require substantial fiscal consolidation.

In case of further deterioration of the prospects for the global economy, oil prices and a willingness to take risks that would lead to a significant weakening of the state or the balance of macroeconomic instability, perhaps even a lowering of the ratings (Fitch downgraded the ratings of Russia on one level 4 Feb., 2009) . Negative shocks in the banking sector or the increasing financial pressure at low levels of external borrowing or rollover of a major outflow of capital would also be a negative factor for the ratings. Moreover, it isnot possible to reduce the budget deficit during the subsequent rapid increase in public debt and the depletion of funds of sovereign welfare funds in the medium term pressure on the downgrading of the ratings. By contrast, with a significant weakening of these risks together, the forecast for the ratings could be revised to stable, said the press release of Fitch.