Russia’s economic policy decisions will determine its credit profile during Putin’s new presidential term, Moody’s said in a report on Russia, published on Tuesday. The agency notes that the focus has moved toward acceleration of GDP growth from the currently estimated potential of 1.5-2.0%, which is positive and implies that there will be changes to economic policy. At the same time, the key issue is which of the long-delayed structural reforms will be carried out, the agency said. According to Moody’s, the positive outlook on its Ba1 rating is not based on expectations of a comprehensive reform programme, but progress in this direction can bring Russia’s rating toward record high levels (Baa1 during 2008-2014). At the same time, the report notes that policy options remain constrained by ongoing sanctions against the country.
We remind that Moody’s is the only agency that rates Russia below investment grade after S&P’s upgrade last month. We expect that post-election rhetoric and reform plans will give the agency enough reasons to upgrade Russia back to investment grade this year unless tensions with the West escalate significantly. However, further rating upgrades will depend on actual progress with reforms, which is more doubtful.