MOSCOW, October 27. (RIA Novosti economic commentator Nina Kulikova.) - Yesterday, Moody's Investors Service upgraded Russia's rating in national and foreign currency liabilities from Baa3, the first investment-grade rating, to Baa2.
It also upgraded foreign-currency borrowing ratings of the state-owned companies Gazprom, Rosneft, Transneft and Russian Railways.
The market and the expert community were not surprised by the change. First of all, the upgrade was expected, because Moody's had raised its outlook for Russia in August. Besides, the same move had been made by Fitch last summer.
Rating upgrades are positive news for the Russian economy in terms of improving its image for foreign investors. Sergei Suverov from Gazprombank says that although the move was expected, Moody's has sent an important signal to the investment community. Now the Russian government and companies will be able to borrow abroad at a lower cost.
However, the new rating does not mean that Russia's investment climate has improved drastically. The decision was encouraged mainly by Russia's macroeconomic stability, which is higher than in many other countries. Russia's GDP grows at approximately 6% annually. The rapidly growing stabilization fund (over $29 billion) and gold and currency reserves (over $150 billion) protect the economy from outside shocks. The country is paying off its foreign debt, which should also boost investors' confidence. Given the current global oil prices, the surplus of the Russian budget and balance of payments, the upgrade seems quite logical.
However, all the factors mentioned above prove only Russia's solvency and its ability to guarantee stability of its national currency. Meanwhile, the investment climate is not determined by macroeconomic factors alone; it is a combination of all aspects of investment activities, including political and legal aspects. Many foreign investors have learned from personal experience that not all of these problems have been solved in Russia.
Moody's points out that the new rating reflects Russia's stable political situation. At the same time, Transparency International has recently released its annual corruption index, which shows that corruption in Russia increased in 2005. The quality of corporate governance, although it is improving every year, is still far from perfect.
Andrei Sharonov, Russian Deputy Economic Development Minister, says that in terms of the quality of state institutions and state governance Russia is inferior to other countries with comparable per capita GDP. Absence of strong independent courts and law-enforcement system that could be appealed to in case of violations does not improve the Russian investment climate either. No wonder that the most conservative of the international agencies, Standard & Poor's, still keeps Russia's rating at the lowest investment-grade level.
Moody's analysts suggested that the Russian government should carry out economic reforms more productively, which means that it needs to promote competition in the economy, encourage development of local capital markets, and create efficient sterilization mechanisms in view of a significant influx of money. In addition, it is necessary to reform the judicial system and combat corruption.
Expert assessments that determine changes in ratings are not perfectly objective. Yet it is obvious that in terms of the government's financial capability to balance the budget and service its debts, Russia is doing fairly well, which is reflected by Moody's upgrade. But institutional problems still hinder more dynamic improvement of the country's investment climate.
