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Standard & Poor’s Ratings Services has issued a new report that concludes that it may take some time for The Russian Federation to be assigned an investment-grade rating.

According to the commentary, entitled “

  • Russia: Is the Future Investment-Grade
  • ” the country has received seven positive rating actions over the past two years, a record in Standard & Poor’s history. However, while there is growing market speculation that Russia will soon be assigned an investment-grade long-term foreign currency sovereign credit rating, Standard & Poor’s does not expect Russia’s creditworthiness to improve in the near future. The reform process on which any such action might be based may have progressed beyond earlier expectations, but it is far from complete.

    “The political and economic risk associated with Russia’s creditworthiness has materially diminished since a combination of political, economic, and structural factors led to the 1998 debt crisis,” says Sovereign analyst Helena Hessel. “Russian president Vladimir Putin has managed to resuscitate market confidence with continued progress on reform and prudent economic policies, particularly an unwavering commitment to fiscal consolidation. However, the accompanying risk is serious enough to keep Russia’s ratings two notches below investment grade.”

    The study states that, while Standard & Poor’s appreciates Russia’s recent significant progress on political stability, structural reform, and macroeconomic stabilisation, these accomplishments supported the country’s upgrades from selective default status to the B category in 2001.

    “Standard & Poor’s also acknowledges the important legislative steps toward political, administrative and economic institution-building achieved during 2002,” notes Hessel. “The significant progress in these areas sustained Russia’s several positive rating actions last year, which lifted the country’s creditworthiness to a solid BB category. However, there is a long delay between enacting many of the structural, legal, and administrative reforms, their subsequent implementation, and then their actual impact on political legitimacy and economic performance.” In the meantime, the absence of a viable banking sector, low labour mobility, slow progress in liberalising the economy, and weak institutional structures make Russia vulnerable.