Moody’s Could Upgrade Russia’s Rating Despite U.S. Sanctions Threat

Russia’s low borrowing requirements make it resilient to U.S. sanctions, Moody’s analyst Kristin Lindow said in an interview with RIA news agency in Moscow. Moody’s Investors Service thinks it’s likely that the U.S. will sanction Russia’s sovereign debt. But it might just upgrade the country to investment grade anyway.

“Those sanctions are likely to come because they would target what the administration has in mind: trying to impose pain on Russia,” Lindow said.

Moody’s, which rates Russia one notch below investment grade, is currently the most downbeat of the three major ratings agencies after S&P Global Ratings upgraded earlier this year. Lindow and her colleagues put the country on positive outlook in January, meaning they have to make a decision on a possible promotion before the middle of next year.

Bank of Russia data shows net capital outflow from Russia in the third quarter increased 48 times compared with the same period last year and amounted to $19.2 billion (against $0.4 billion). At the same time, the net capital outflow in the first three quarters increased by 2.3 times compared to the same period last year and amounted to $31.9 billion.

“What we see now is rather normal market factors rather than capital outflow. On the other hand, I believe that the uncertainty created by the threat of additional sanctions from the United States can continue to restrain capital inflows,” Lindow added.

A proposed ban on Americans buying new Russian sovereign debt appears to be gaining traction in Washington after it appeared on at least two bills that have bilateral support in Congress. Lindow says Russia can cope with such a measure because it doesn’t have any urgent need to borrow. The nation’s outstanding debt is among the lowest in emerging markets and it’s on track to run a budget surplus in 2018 for the first time in seven years.