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Standard & Poor’s Ratings Services has raised its long-term issuer credit rating on the Russian Republic of Bashkortostan to ‘BB-‘ from ‘B+’, following a growth of reserves. The outlook is stable.

“The rating action reflects an increase of reserves, which far exceed debt service,” says Standard & Poor’s credit analyst Felix Ejgel. “Another cause is the republic’s commitment to low debt and strong financial performance despite the growing financial pressure on the budget due to rising salaries, infrastructure pressures, and slower-than-average economic development.”

The rating on Bashkortostan is constrained by low revenue predictability and flexibility, which stem from evolving tax and intergovernmental reforms, dependence on the oil sector, the need to increase transparency of financial and socioeconomic policies, still-high contingent liabilities, and dependence on federal transfers. Low debt, high liquidity, and outstanding budgetary performance mitigate credit risks at this rating level.

Standard & Poor’s assumes that Bashkortostan’s prudent financial management will help offset the pressure on the budget resulting from the increase in personnel spending and infrastructure financing needed to restructure the economy.