S&P puts Russia in the firing line

A sign for Standard & Poor's rating agency stands in front of the company headquarters in New York, September 18, 2012. (AFP Photo/Emmanuel Dunand)
Russia may soon fall victim to the sharp eye of S&P. The rating agency says should the oil price fall to $60/bbl it will push the country into junk status.

Better business climate and judiciary, coupled with a decisive fight against corruption and less government in its economy will help to heat up growth and provide a better investment grade for Russia, according to S&P.

The country’s Government also should watch its expenses and not spend massive amounts in the effort to win over public opinion, said

Kai Stukenbrock, S&P’s Head of Sovereign Ratings for the Commonwealth of Independent States and the Middle East.

Fighting corruption“could help the growth potential and also the resilience of the economy,” Bloomberg quotes Stukenbrock as saying. “The question is whether the government will be able to change their mode of operation and curtail expenditure growth.”

Currently Russia is rated BBB, which is the second lowest investment grade. This puts the country on the same level with Bulgaria and Lithuania.

As the budget relies more than 50% on oil revenues makes it extremely vulnerable to any external shocks. A $10 drop in average oil prices can widen Russia’s budget gap by 1.4% of GDP, the rating agency calculated.

While little has changed in terms of Russia’s energy efficiency, a course towards a more market driven rouble taken by Russia’s Central Bank, as well as the country’s entrance into the World Trade Organization mark important steps in the right direction.

Spain is the latest S&P focus of attention. Last week the rating agency downgraded the country to the lowest investment grade status, BBB-, referring to high unemployment and social unrest. This was followed by an attack on the country’s banks, with 15 Spanish lenders seeing their credit ratings cut on Tuesday.