"Trash" rating - this is what? What awaits Russia after the "garbage" rating

Today in the media, every now and then, reports are skipping about assigning Russia's estimate with a specific name to the "garbage" rating. This definition for many remains incomprehensible, because an ordinary person can not understand financial terms well, and if the rating is more or less clear, then such jargon expressions as "garbage" need to be told in more detail. About this and other topical issues from the field of economics later in this article.

What it is

To understand what the "junk" rating means, first of all you need to understand the definition of "credit rating". Any individual, company or even a country can have its own solvency rating. For example, banks in most cases make up their own borrower ratings, and when it comes to assessing the soundness of large corporations or states, this is done by specialized independent rating agencies. Among them are FitchRatings, Moody's and Standard & Poor's (S & P), whose activities extend to the whole world, and most investors listen to them.

In relation to the states, these indicators are compiled on the basis of an analysis of the economic situation, the exchange rate of the national currency and other indicators.

It can not be said that there is some generally accepted rating system, each agency has its own methods and indicators. All estimates can be conditionally divided into obligations of the highest, highest, average quality. Further, there are risky and speculative guarantees, as well as forecasts for an early default. The "garbage" rating is a commitment of just this type.

Causes of the crisis in Russia

Although in recent years, Russia's credit rating has not been at a high level, but it was not a "garbage" and the solvency of the country was not particularly questioned. Problems began in 2014, after the accession of the Crimea and subsequent sanctions from the US and the European Union. All aggravated by the fall in oil prices, which provoked a significant devaluation of the ruble. These and other events gave rise to talk about the crisis and even the possibility of default in Russia.

Usually countries with a "junk" rating have a weak economy with many problems. Now the international community has seriously started talking about the inclusion of Russia in this unpopular list. By the way, last time the country's credit rating was at the level of "junk" in 2005.

Pessimistic forecasts

At the end of 2014, former Finance Minister Alexei Kudrin said that a full-fledged economic crisis was beginning in the country. According to him, Russia in 2015 may well be given a "junk" rating, this will be caused not only by low oil prices - sanctions also provoke a recession in the economy. According to the forecast of the former head of the ministry, the country's GDP will decrease by at least 2%, provided that oil will cost $ 80, at low prices around $ 60, the economy may fall by 4%.

Kudrin also believes that the government is pursuing an inadequate policy, so that low or zero growth rates are inevitable even without external difficulties related to oil prices and sanctions.

Decrease in the rating

At the very beginning of 2015, Fitch Agency lowered the solvency rating of Russia to the level of BBB-, which is the last step in the investment zone, then the "garbage" rating goes on. Russia was given a negative outlook for the near future.

Soon after, the rating agencies S & P and Moody's downgraded Russia's credit rating to speculative or so-called "junk". According to their reports, one of the reasons for the decline in estimates is the ongoing conflict in Ukraine, which, one way or another, can affect the economic situation in Russia itself. In addition, the rating is negatively affected by low oil prices and the unstable exchange rate of the national currency.

Agency Moody's, among other things, believes that there is a likelihood of the Russian government taking such decisions, which in one way or another may affect the servicing of the country's foreign debt in due time.

It is worth noting that if the estimates of different agencies differ, then the worst forecast is taken into account first.

Evaluations are objective

The rating agencies of the Big Three are independent institutions, their assessments are generally considered unbiased and objective. However, the fact that agencies, one by one, appropriates the "junk" rating of Russia, is considered by the Ministry of Foreign Affairs as a political decision, unjustified from the economic point of view and aimed at weakening the country. The ministry is confident that such assessments are part of the Western policy of pressure on Russia through sanctions.

It is noteworthy that the decision by Moody's to give Russia an estimate of Ba1, which just does mean a "junk" rating, was considered by Kudrin to be inexplicable, despite the fact that earlier he had suggested that it could reduce Russia's sovereign rating to speculative. It is puzzling and the fact that before this rating was revised only a month ago - it is unclear why this is needed right now.

Than it threatens the country

In itself, the "trash" rating does not threaten much, especially as the economy is more influenced by such key factors as the price of oil, the ruble exchange rate, as well as the lending of companies and the public. We can say that the low rating reflects the existing difficulties.

Countries with a "junk" rating may have difficulty obtaining loans abroad, and in the case of Russia, given the sanctions imposed on it, the low ratings of agencies will change little - the flow of investment in the country has declined significantly in 2014. However, many investment funds impose a ban on investing in the economy of states with a "junk" rating, so the inflow of foreign funds may somewhat decrease, but this is unlikely to become critical for the economy.

Talk about default

As for rumors about the possibility of default, they are certainly an exaggeration and a panic. If we talk about low ratings, then to category D, which means a high probability of default, Russia is still far away.

The "garbage" rating is not a verdict, moreover, the external debt of the Russian Federation is not so great and amounts to just over 10% of GDP, while in other countries with a higher rating, public debt may exceed their GDP. If necessary, Russia can service its obligations at the expense of gold and foreign exchange reserves.

What does "junk" rating mean for Russia?

First of all, it should be said that the "junk" rating does not mean the country's final roll into the crisis pit. Against the backdrop of poor assessments of Russia's solvency, as well as low oil prices, analysts predicted a further fall in the ruble exchange rate and other problems in the economy. However, in the spring, the ruble appreciably strengthened against the dollar, and oil prices stabilized. The government takes appropriate measures to overcome the crisis.

For example, Ukraine's "junk" rating actually reflects a deplorable state of affairs in the country, whose economy directly depends on Western credits. In the case of Russia, everything can change. Sooner or later the situation will improve, and then the rating agencies will reconsider their estimates for the better.