Russian economy to grow 3.8% in 2021, rouble to firm

MOSCOW: The Russian economy will expand 3.8% next year - the fastest growth since 2012 - and the rouble will firm up, assuming no new Western sanctions are imposed on Moscow, the head of Russian credit rating agency ACRA said.

Russia's economy is on track to contract about 4% this year, according to the central bank, hit by the COVID-19 pandemic, lower prices for oil, Russia's most lucrative export, and a headwind from market fears of more Western sanctions.

"In our base case scenario we do not consider new sanctions against Russia, particularly such as restrictions on the purchasing of state debt," Mikhail Sukhov told Reuters in an interview.

Russia set up ACRA in 2015 after economic and financial sanctions were slapped on Moscow for its role in the Ukrainian crisis and the annexation of Crimea, leading the top three global rating agencies to downgrade Russia's sovereign debt rating.

Major Russian banks, companies and pension funds hold equal shares in ACRA, which is also promoted by the government and the central bank.

Sukhov, a former deputy governor of the central bank, said ACRA's base case scenario is foreign investors to keep their share of OFZ treasury bonds at their current levels of 27%-30% in 2021.

Moscow is increasingly dependent on OFZ bonds as it uses them to plug holes in the budget created by a fall in export revenue and by the need for greater state spending to tackle the COVID-19 pandemic.

ACRA has also drawn up a more pessimistic scenario factoring in the possibility of new sanctions being imposed on new Russian debt, said Sukhov.

In 2019, Washington set restrictions on US banks buying sovereign Eurobonds directly from Russia, raising market fears that tension between Moscow and Washington could possibly trigger similar sanctions on OFZ bonds.

If that were to happen, foreign investors' share of the OFZ market could fall to 17%-19%, leaving an extra OFZ supply in the market of around 1 trillion roubles ($13.6 billion) and pushing OFZ prices lower by up to 100 basis points, according to Sukhov.

"Such an impact is not critical for the budget, it will digest this effect... Possible sanctions on state debt won't have a serious impact on prices (in the longer run) if we don't take into account an immediate adjustment should this risk occur," he said.

COVID-19 CRISIS

Sukhov said Russia's creditworthiness is "strong enough" thanks to its low state debt level, abundant reserves and efficient monetary policy.

Fitch Ratings, Moody's and S&P Global Ratings have assigned investment grade ratings to Russia, citing its fiscal and monetary policies that helped Moscow borrow money on global markets by issuing Eurobonds this year and last year.

Sukhov said ACRA expects the rouble, hit by the pandemic and related restrictions, to average 71 per dollar in its 2021 base case scenario. On Monday, the rouble was at 73.55 versus the dollar.

On the corporate level, the coronavirus crisis this year led to 34 positive rating actions for ACRA clients and 27 negative actions, Sukhov said. Other clients saw their ratings affirmed. ACRA, which had 250 clients in 2020, uses colour-coded zones based on credit risk levels -- green, yellow and red.

IT and telecom companies along with home builders got into the least-risky green zone this year, oil and gas companies and commercial real estate firms were in the yellow zone, while airline operators slipped into the red zone, Sukhov said.