Moody's says outlook for Russian regional, local governments stable
MOSCOW. May 7 (Interfax) - Moody's Investors Service said its
outlooks for Russian regional and local governments (RLGs) are stable.
While RLGs are not immune to the current financial market
conditions, they will likely remain somewhat protected from the worst
effects of the credit crisis at least through the beginning of 2009,
according to a report titled "Stable Outlook for Russian Regional &
Local Governments," from Moody's Investors Service.
"The overall financial situation remains under control as indicated
by the generally low re-financing needs of Russian RLGs for 2008,
adequate cash positions, improving budgetary performance and continued
low debt levels," said Vice President - Senior Analyst Massimo Visconti,
a primary author of the report.
He said the report highlights and comments on the mix of financial,
macroeconomic and institutional variables that come into play in
determining the stability of the outlook for Russian RLGs.
"These characteristics are currently protecting the regional and
local governments from the adverse financial market conditions
worldwide," said Visconti. "Despite growing spreads, medium maturities
of existing exposures and low-to-moderate financing requirements allow
many entities to wait for the second half of the year before tapping the
markets."
He said Moody's has noted a greater stability in intergovernmental
relationships in Russia, which should translate into a higher
predictability of revenue structure at the regional and local government
level. This is especially relevant as RLG revenue in Russia is exposed
to economic cycles and their capacity to raise taxes is limited.
"Sustained economic growth in recent years has strengthened the
trend toward fiscal consolidation in the sub-sovereign sector as well as
for the sovereign," said Vice President - Senior Analyst Alexander
Proklov, a coauthor of the report. "However, such growth has been
accompanied by a parallel rise in inflation rates and peaks in consumer
prices in basic sectors and services such as raw materials, food, gas
and energy."
In view of RLGs' relevant exposure to those sectors, he said, an
excessive overheating of the national economy associated with a
worldwide prolonged stagnation may pose some risks to their budgetary
balance.
"In following financial, institutional and macroeconomic conditions
to assess the impact on Russian RLGs' credit quality," said Proklov. "We
give significant weight on the systemic risk to the operating
environment under which Russian RLGs operate."
Any relevant improvements in this regard are susceptible to
prompting a modification of the outlook for the sub-sovereign sector,
but only if it is associated with the capacity of RLGs to structurally
benefit from these changes.
"Of course," said the analysts, "the stability of the outlook for
the sub-sovereign sector does not necessarily preclude positive or
negative rating actions on individual Russian RLGs depending on their
specific performances."
Pr
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