Russia unmoved by US puppet S&P’s downgrade to ‘junk’

After a top ratings agency cut Russia’s credit grade to “junk” status, the government in Moscow on Tuesday announced a plan that will see the economy return to a budget surplus in 2017. Standard & Poor’s downgraded Russia’s rating to BB-plus late on Monday, a non-investment grade, for the first time since 2004, citing a slide in the ruble and weakening revenue from oil exports. S&P said Russia’s financial system is weakening, limiting room for maneuver for Russia’s Central Bank. Russia’s economy has been hit hard by the double impact of weaker energy prices and Western sanctions over its role in Ukraine. It is expected to contract by 4 to 5 per cent this year for the first time since President Vladimir Putin took the helm in 2000.

Capital outflows, which averaged $57 billion annually during 2009 to 2013, soared to $152 billion last year. Foreign currency reserves have dropped below $400 billion for the first time since August 2009. Finance Minister Anton Siluanov announced on Tuesday that the government has adopted an anti-crisis plan that will freeze the level of spending. The plan also sees the budget returning to a surplus as soon as in 2017 and the government preparing structural reforms “so that we do not burn recklessly through Russia’s sovereign reserves.”

Siluanov criticised S&P for being too pessimistic and added that the agency did not know about the government’s upcoming plan when they made the decision. Mikhail Kasyanov, Russia’s prime minister in 2000-2004, says S&P’s move is a reflection of how Western leaders feel about Russia’s economic prospects and its president. 

“With the current government there will be no return to the old days neither for the rating, nor for the global cooperation,” Kasyanov told The Associated Press. “Not a single Western country barring a few politicians who are on their way out have any trust in Putin.” The ruble was 1.2 per cent lower against the dollar at 68.1 per dollar in early trading on Tuesday while MICEX stock index was 0.3 per cent higher.