Fitch Cuts Russia Outlook

Fitch Ratings cut the outlook on Russia's triple-B rating to stable from positive Monday, citing rising political uncertainty and the worsening global economic outlook.

"Political risk, reflected by poor governance indicators, is a long-standing weakness compared with most other 'BBB' rated countries, and recent events have highlighted the limitations and risks associated with Russia's political model," Fitch said in a press release accompanying the outlook cut.

Tens of thousands of protesters hit the streets of Moscow and other Russian cities in a string of rallies after disputed parliamentary elections on Dec. 4. The rally on Dec. 24 was the largest anti-Kremlin protest in two decades, with protesters demanding a re-run of the elections, which they see as rigged, and changes to the country's election law.

The next major anti-Kremlin protest is scheduled for Feb. 4, exactly a month ahead of the presidential vote, in which Prime Minister Vladimir Putin is seeking to return to the presidency.

Although Mr. Putin is still expected to win the March 4 presidential elections, it is unclear how the country's leadership will respond to the wave of protests and the broader shift in the political landscape, Fitch said.

"In the long term, democratic development that leads to better governance could be positive for Russia's ratings, but in the short term, uncertainty has increased," the rating company said.

"Post election there is a serious chance of more far reaching and meaningful reform" said Timothy Ash, an emerging-markets analyst at Royal Bank of Scotland Group PLC in London. "Russia will not be the same post these demonstrations," he said.

Fitch rates Russia at triple-B, or two notches above junk status. That rating is in line with peer Standard & Poor's Corp., which affirmed Russia's triple-B foreign currency rating last August citing balanced risks as the country's low government debt levels and net external creditor position are offset by vulnerability with regard to the budget and key export prices. The outlook on its rating is also stable.

However, in September last year President Dmitry Medvedev fired Russia's then finance minister Alexei Kudrin over his criticism of increased budget spending, notably on the military. Since then, Mr. Kudrin had been calling for structural reforms, narrowing of the non-oil deficit and reining in spending.

"A narrowing in the non-oil and gas budget deficit, a sustained reduction in inflation or significant structural reforms that improve the business climate could lead to a rating upgrade," Fitch said.

In contrast, a sharp fall in oil prices or a political shock could trigger negative rating action for Russia, it said.

read more: Olympus Wealth Management