S&P Warns Russia on Oil Price Risks
Standard and Poor's warned Monday it may cut Russia's debt rating in case of a drop in the price of oil because of its "huge impact" on the economy and president-elect Vladimir Putin's campaign promises.
The global ratings agency said a $10 decline in the global price of oil would lead to a 1.4-percent of gross domestic product drop in government revenues.
It estimated that Russia would need an average oil price of $120 per barrel this year to keep the budget balanced -- slightly above the $117 figure given by the government.
Settlement prices for Urals grade oil futures the government uses as a reference hovered around $125 on Monday.
"This high oil price supports the government's expenditure levels for now, S&P said.
"However, spending pressures, resulting for example from an aging population or to implement a significant part of the spending promises made during the presidential election campaign, will likely fuel the need for rising revenues."
It said that a drop in the price of oil to $60 would see Russia's long-term debt rating drop three notches from its current level of BBB to the second-lowest investment grade issued by the New York-based firm.
S&P warned that Russia remained particularly susceptible to a continuing economic slowdown in China and its impact on global energy consumption and prices.
Such a drop would "affect Russia particularly severely," credit analyst Kai Stukenbrock wrote in the report.
Economists estimate that the six-year spending plan announced by Putin during his successful campaign for a third term will cost around $170 billion and may require oil prices of more than $150 to sustain.
Putin said the spending will be limited to 1.5 percent of gross domestic product rather than the four or five percent figure estimated by some analysts.
A top Kremlin economic adviser last week said Russia may cut non-essential spending to fulfill Putin's program if oil prices decline.
Source: Agence France Presse
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