While Russian government continues to react to the international financial crisis by throwing billions of dollars into the banking system the news that most developed economies are entering a recession has sent the price of crude tumbling to prices last seen in 2004. This is terrible news for a country that relies on oil for over 60% of its export revenue. Additioanlly, Vnesheconombank, the state operated development bank that is in charge of the government’s $200 billion financial stimulus package (15% of Russian GDP), is now asking for $34 billion from the state to fortify it’s own books.
Loaded with ambitious social programs, the 2009 budget forecasted a price of $65 per barrel – which is well about the current trading level of $43. While the Russian government has publicised the fact that it has paid down the majority of its sovereign debt, the Russian private sector has been borrowing at a fast pace. All of this news combined with the opaque nature of the Russian response to the economic crisis has led the S&P to issue the downgrade. In an article from the Moscow Times Anton Tabakh, a fixed-income analyst at Troika Dialog states:
“It is like a notification to the Russian Finance Ministry, the Central Bank and the government that even if there is no risk of outright default by the federal government, the rating agencies are watching and that their respect for Russian economic management has fallen after recent events.”
Published Date: December 17, 2008