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. Last Updated: 07/27/2016

Fitch Says Debt a Cause for Concern




The head of international rating agency Fitch IBCA said Monday the recent buildup in Russia's short-term debt could negatively influence the country's credit rating when it comes up for review at the end of March.


Robin Monro Davies, Fitch IBCA's chief executive officer, said Monday the high proportion of short-term borrowing in Russia was cause for concern.


Fitch IBCA announced last week that it was reassessing Russia's long-term BB+ foreign currency rating pending a possible downgrade.


Monro Davies said Russia's alarming fiscal deficit has been compounded by the Asian crisis and lower world oil prices. Higher interest rates have put even more pressure on the government's fiscal troubles, he said.


Contagion from Asia has caused yields on Russian treasury bills, known as GKOs, to jump to as high as 45 percent in recent months, raising concerns about Russia's budget deficit.


Monro Davies also said the agency is reviewing its rating technology following the downturn in Asia, where a buildup in short-term debt led to rapid capital outflows once investors lost confidence in the region.


"There has been some controversy around rating agencies in recent months for their failure to spot the dramatic deterioration in the economies of Asian countries," Monro Davies said.


"Under the old methodology, attention was paid only to how much the country had borrowed," he said. "Now we attach more penalty to short-term debt."


Another credit rating agency, Moody's Investors Service, said Monday the Asian crisis had not forced changes in its rating technology but it said short-term borrowing will be an important consideration in assigning ratings. Moody's also has placed Russia's Ba2 rating under review for a possible downgrade.


"Heavy reliance on short-term borrowing has increased the difficulties of long-term borrowing," Moody's said in a statement.


Stuart Brown, head of East European research at Banque Paribas in London, said agencies and investors had been caught by surprise by the degree to which short-term debt had escalated in Asia, particularly Korea.


"The Russian government is in a position where it pays off holders of three month GKOs and then has to find financing for the next few months," Brown said "At present they have to be happy if they can even place shorter-term bonds."


He said the proportion of short-term debt in Russia's borrowing amounted to roughly 30 percent.