RTTNews - Tuesday, Fitch Ratings affirmed Russia's long-term foreign and local currency Issuer Default Rating or IDR at 'BBB', with negative outlooks. At the same time, the firm affirmed the short-term foreign currency IDR at 'F3' and the Country Ceiling at 'BBB+'.

The Russian economy and sovereign balance sheet have been severely affected by the global financial crisis and, despite signs of economic and financial stabilization since March, risks to creditworthiness remain on the downside, Edward Parker, Head of Emerging Europe in Fitch's Sovereigns team said.

The Russian economy contracted 10% year-on-year in the first half of this year, far worse performance than in other larger emerging markets. Moreover, foreign exchange reserves fell by US$200 billion over the past 12 months, Fitch said.

On the other hand, Fitch pointed out that public finances were Russia's sovereign rating strength. General government debt was only 8% of GDP at end-2008, well below the 'BBB' range 10-year median of 35%. Moreover, the country had US$184 billion in its Reserve Fund and National Wealth Fund, which provided a strong liquidity position to finance budget deficits.

At the same time, the firm said a fall in oil prices and anti-crisis measures would cause the federal budget to swing from a surplus of 4.1% of GDP in 2008 to a deficit of 8.5% in 2009 and 6% in 2010. Even with a return to the eurobond market next year, this will cause the Reserve Fund to be depleted in 2010 and require significant fiscal consolidation over the medium-term, Fitch said.

Meanwhile, the firm forecasts Russia's GDP to contract 7% in 2009, before increasing 3.5% in 2010.

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