Over the course of 2016, Vladimir Putin’s Russia has rarely been out of the headlines, and it’s seldom been positive. In late December, the Russian ambassador to Turkey was killed in an attack allegedly related to Russian involvement in Syria; and this is not the first time that Putin’s continued backing of Bashar al-Assad has caused controversy.
Throughout the US Election campaign and its aftermath, Russia’s actions have regularly made headlines. Suspicions of interference in the election through hacking both parties’ systems, and selective releases to Wikileaks have recently been alleged by the CIA. President-elect Donald Trump, who has been criticised for his campaign team’s links to Russia, has refuted this; but the Obama administration has gone ahead with the expulsion of 35 Russian diplomats in retaliation last week.
Putin has also tried to flex Russia’s military might in 2016. He recently sailed an aircraft carrier group down the North Sea, has moved nuclear capable missiles close to Lithuania and Poland, and regularly flies military planes very close to NATO air space.
Analysts and economists, however, speculate that all this is to draw attention away from Russia’s weakening position at home. As a country rich in natural resources, it rode the commodity boom of the 2000’s. However the fall in commodities in recent years has highlighted Russia’s lack of other exports. The Russian economy grew at 7% a year at the start of Putin’s reign, but it has shrunk for the past two years. And although Russia still has a low Debt to GDP ratio of 18%, this ratio has trebled since 2008 and the Ruble has slumped by over 60% against the dollar in the last three years.
Yet despite the headlines and the potential consequences for Russia, banks’ view of Russian creditworthiness has been very measured. Putin’s apparent lack of respect for the Western order does not seem to extend to his economic policies. Indeed, he supports Elvira Nabiullina, an old ally, as Head of the Central Bank of Russia . Nabiullina has received Western acclaim for her work, including stabilising the economy and cleaning up the banking system.
Contributor banks have taken a very measured approach to the year’s events. Russia continues to maintain its CBC* of from late 2015. This has been stable throughout 2016 with a slightly improving trend.
This suggests that banks are taking a longer-term, more measured view. If Trump is able to improve US-Russian relations in 2017, there is scope for a positive impact on Russia’s CBC.
*CBC = Credit Benchmark Consensus; a 21-category scale which is explicitly linked to probability of default estimates sourced from major banks. A CBC of bbb+ is broadly comparable with BBB+ from S&P and Fitch or Baa1 from Moody’s.
Image Source: Visit Russia