Russia announces anti-crisis plan after rating downgrade

January 27 06:14 2015

A day after a top ratings agency cut Russia’s rating to junk level, 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. The agency said Russia’s financial system is weakening, limiting room for maneuver for Russia’s Central Bank.635554405579752331-AP-Russia-Economy

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% 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 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 criticized 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.

The ruble was 1.2% lower against the dollar at 68.1 per dollar in early trading Tuesday while the MICEX stock index was 0.3% higher. The ruble is now worth half as much as a year ago. Moscow-based investment bank Sberbank CIB said in a note to investors that the long-term market reaction to the downgrade depends on if or when the other two major ratings agencies, Fitch and Moody’s, will cut Russia’s grade to non-investment.