S&P warns on government spending

27 April, 2010, 09:53

Standard & Poor's has warned Russia's credit rating may be lowered if the government doesn't tighten its spending policy in the near future.

However, speaking to Business RT, the head of S&P's Russian and CIS department, Aleksey Novikov, said the possibility of downgrading Russia's rating is less than it used to be.

AN: “On the positive side we have a very strong fiscal performance – and stronger than expected fiscal performance of the Russian government, and we see that the oil price performance is very favourable for the Russian economy plus current account surplus is higher than last year, now it's probably 5% of GDP, last year it was 3.5% of GDP, so it's getting better-better-and-better, Russia is recovering from the crisis relatively fast.”

RT: What are Russia's credit risks?

AN: “The policy to reduce fiscal deficit requires some cuts in capital expenditure, which could be very important for the Russian infrastructure, and Russian infrastructure – roads, energy infrastructure – it's a base for Russia's growth. The reduction in capital expenditure on the one hand helps fiscal health, on the other hand constrain growth prospects. Russian banking system survived successfully the crisis but remained unreformed.”

RT: What are your concerns about Russia's budget deficit?

AN: “It's lower than expected, it's absolutely manageable. If you look at budget deficits in countries like Italy, France, Greece, Portugal, even in the United States and the UK, you'll see that this number is around 10%, in Russia it's less than 5%, and it's going to be less in 2010."

RT: How much does it depend on the oil price?

AN: “The oil price performance is still very important factor for the Russian credit profile, oil and gas dominate the economy still, the diversification is possible but in the longer term.”