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- Druzhba debt: the Russian Federation has received its first foreign credit rating since the beginning of its history
Druzhba debt: the Russian Federation has received its first foreign credit rating since the beginning of its history
Russia has received its first sovereign credit rating from a foreign agency for the first time since the beginning of its history. Moreover, its value turned out to be higher than before the special operation. The rating "BBB+g" of the Russian Federation was assigned by China Chengxin International Credit Rating. This is a landmark event in the context of the current economic and geopolitical situation, experts believe. An increase in valuation may become a formal basis for expanding Russia's access to financing instruments in Asian markets. How else the assignment of the rating will affect relations between Russia and China is described in the Izvestia article.
An important reboot
China Chengxin International Credit Rating (CCXI) has upgraded Russia's sovereign credit rating to BBB+g. The forecast for it is stable. This is the first rating received by the Russian Federation since the beginning of the special operation in Ukraine.
CCXI experts believe that the modern Russian economy has adapted to the harsh sanctions and demonstrated its ability to withstand shocks. And the government's fiscal and monetary policies have become more prudent.
Supporting enterprises in rebuilding logistics chains, increasing government spending to stimulate domestic demand, and redirecting oil and gas exports to friendly countries also had an effect on strengthening the economy.
The agency also took into account sufficient foreign exchange reserves. As of May 1, the domestic debt amounted to 24.99 trillion rubles, while the external debt amounted to $53.9 billion. The National Welfare Fund provided support for the solvency of the external debt. The procedure for repayment of the remaining amount is regulated by Russian law.
At the same time, the budget deficit decreased to 1.7%. Basically, as noted, the government of the Russian Federation covers it by issuing bonds on the domestic market and withdrawing funds from the National Welfare Fund. Due to increased defense spending and higher taxation, the budget deficit is expected to remain unchanged year-on-year.
The agency also draws attention to the trend towards stabilization of the foreign policy situation. The geopolitical risks for Russia have decreased, although the Ukrainian conflict is still ongoing. Therefore, China Integrity International is focusing on the impact of the lifting of European and American sanctions on Russia's sovereign loan in the future. Against this background, CCXI may consider raising the credit rating of the Russian Federation.
However, there are risks of an imbalance between supply and demand in the context of high government spending and labor shortages, which could be exacerbated by stricter migration policies.
Inflation is also putting pressure on the sovereign credit rating. It is forecast to decrease while maintaining high interest rates. But they can also restrain domestic economic activity, which will slow down economic growth.
In addition, the economic prospects of the Russian Federation may worsen the escalation of the conflict in Ukraine. This, as well as changes in the public debt servicing system or default on it, may lead to a downgrade of Russia's rating.
The position of the authorities
Receiving a sovereign credit rating from China's CCXI means the PRC's trust in Russia and their confidence in the stability of the country's financial system, the Russian Ministry of Economic Development responded to the news.
It is expected that in the future this will contribute to the development of economic and investment relations with the countries of the Asian region.
The press service of the ministry stressed that the Russian economy remains stable despite the pressure of sanctions. The GDP growth of the Russian Federation in 2023-2024 exceeded the global average, which made it possible to consolidate the country's position as the fourth largest economy in the world in this indicator.
The editorial board of Izvestia sent requests to the Ministry of Economic Development and the Ministry of Finance of the Russian Federation. No responses had been received at the time of publication.
Large-scale adaptation
The assignment of a sovereign credit rating of BBB+g to Russia by the Chinese agency China Chengxin International has become a landmark event in the context of the current economic and geopolitical situation, Alexey Govyrin, a member of the State Duma Committee on Small and Medium-sized Enterprises, is convinced.
— Considering that this rating agency has withdrawn the credit rating of the Russian Federation since 2022, assigning it now is a significant success. This means that Russia has built strong financial, economic and political relations, as well as competent logistical ties with China," emphasizes Inna Litvinenko, PhD in Economics, Associate Professor at the Russian State University of Social Technologies.
Of particular importance is the fact that the current assessment is higher than that previously assigned by Western agencies, Ruslan Pichugin, an independent expert in the field of private investment, draws attention. The last time S&P assigned a similar rating to Russia was in 2005-2009, Maxim Kuznetsov, chairman of the Russian-Asian Business Council, recalls.
A rating of "BBB+g" cannot be considered extremely high, since countries with an "A" rating are in a better situation. However, such a rating cannot be considered low either, it is higher than the "C" category, notes Evgeny Smirnov, Doctor of Economics, Head of the Department of World Economy and International Economic Relations at the State University of Management.
"At a time when major players such as S&P, Moody's and Fitch have stopped rating Russia, the emergence of an alternative assessment from China not only fills the vacuum, but also reflects the growing role of East Asian rating institutions in the global sovereign risk assessment system," said Govyrin.
The global financial system is currently undergoing major changes, within the framework of which a new architecture of the world economy is being formed, where the role of the eastern vector of development is increasing, Pichugin agrees.
"It is becoming obvious that international credit scores are no longer perceived solely as indicators of the reliability of payments, acquiring a political connotation and becoming an important element of the global rivalry in which Russia and China act as allies," he believes.
Receiving the rating indicates that politically motivated assessments of the country are gradually changing to more balanced and pragmatic ones, adds Kuznetsov.
Responsible debtor
An important aspect that is taken into account in any credit rating assigned to a state is the country's ability to repay its debt obligations in full and on time, explains Evgeny Smirnov. The Chinese agency assumes that Russia's external debt is decreasing, and the country's economy as a whole is showing steady growth based on good dynamics of domestic demand.
Russia has one of the lowest levels of public debt in the world in relation to GDP, Maxim Kuznetsov emphasizes. This, coupled with the stability of public finances, as well as a significant amount of government reserves, has become a key factor in the agency's decision-making.
The risk of default, including related to the budget deficit, is the main factor that can affect the assessment of CCXI, warns Smirnov. However, over the past two years, the Russian government has managed to reduce this deficit by using reserves and issuing bonds on the domestic market.
The rating was also facilitated by the fact that in two years Russia has carried out a large-scale adaptation to external sanctions pressure, maintaining fiscal balance, controlled inflation and the relative stability of the ruble, Alexey Govyrin points out.
Such results were achieved thanks to the strategic decisions of the President and the government of the Russian Federation. This is the result of their implementation at the federal and regional levels, as well as on the world stage, Inna Litvinenko emphasizes.
"The agency's assessment confirms that the decisions of the Russian authorities are made not on the basis of emotions and situational benefits, as Europe and the United States do, but taking into account the long—term consequences," the expert is convinced.
An example of this, according to the interlocutor of Izvestia, is competent work with sanctions restrictions.
— No country in the world, having received more than 20 thousand I would not have been able to turn each of them in its own direction, turning it into an advantage for politics and economics," Litvinenko believes.
CCXI, according to Evgeny Smirnov, believes that most of the possible restrictions against the Russian Federation have already been introduced, and the possible pressure on the Russian economy has been exhausted.
Assigning Russia the creditworthiness status of this level is an event of great importance not only in economics, but also in politics, Ruslan Pichugin believes. The United States and Russia are gradually moving forward in negotiations on the Ukrainian conflict, which also affects the agency's assessment, adds Smirnov.
Building trust
China, being Russia's largest foreign trade partner, has the ability to track real capital flows, trade turnover and contractual obligations, which makes its assessment not only a political gesture, but also a product of monitoring the internal solvency of the state, Alexey Govyrin points out.
—An increase in the rating by the Chinese agency can strengthen trust between the economic institutions of the two countries and become a formal basis for expanding Russia's access to financing instruments in Asian markets," the deputy believes.
He also considers it a signal to Chinese banks and corporations that the expectation of a long-term partnership with Russia has a basis beyond the current conjuncture.
"The assessment increases the attractiveness of Russian assets for investors from China, expanding the space for cooperation and deepening integration processes," Ruslan Pichugin notes.
However, according to Evgeny Smirnov, the rating will not have a fundamental impact on cooperation between the two countries, because strong ties have already been formed between them in recent years.
—Russian exports are in demand in China, as well as Chinese goods in Russia, and this has little to do with the general background of our country's creditworthiness, which has also improved in recent years," the expert emphasizes.
A plan for future relations between the two countries has been formed for the coming decades, says Inna Litvinenko. And assigning Russia a rating at the current level speaks to the correctness of the choice made by both sides, she summarizes.
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