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. Last Updated: 07/27/2016

Moody Hints at Upgrade in Russia's Rating

Moody's Investors Service may raise Russia's credit rating as the country's ability and willingness to repay debt improves, said Jonathan Schiffer, senior credit officer at Moody's sovereign risk unit in New York.

High oil prices, soaring foreign currency reserves, the country's growing stabilization fund and prudent economic management make Russia a better credit, Schiffer said in an interview. "We still look at it as a credit that could move upwards."

Moody's was the first major credit agency to upgrade Russia to investment grade, rating the country's debt as Baa3 in October 2003. It raised the outlook on the country's foreign currency debt ratings to positive a year later.

"We still think that the basic trends are positive upwards rather than downwards, ... as in up towards the Baa2 rather than back down to Ba1," Schiffer said. "So we still tend to be on the positive and the optimistic side."

Russia is considering how to spend massive windfalls from high oil prices, which have swollen government coffers and helped turn the country into one of the darlings of emerging-market debt markets since the August 1998 domestic debt default.

The country's $149.6 billion of foreign currency and gold reserves now exceed total foreign debt.

Rumors of an upgrade have swirled around Moscow in recent weeks. But Schiffer said he wanted to see how the government would cope with slowing investment, accelerating inflation and its policy on the stabilization fund, which holds windfall oil revenues.

As the country benefits from oil prices around double the level on which its budget spending plans are made, Russia has sought to pay off debts and has struck deals with some of the world's biggest lenders.

In May, Russia struck a landmark deal with the Paris Club of sovereign creditors to repay up to $15 billion owed to the West.

"As we are measuring purely the government's willingness and ability to pay -- its willingness is very strong as has been demonstrated recently by the Paris Club arrangements which are being carried out," Schiffer said.

Moody's also wants to see what happens with the key investment, inflation and stabilization fund issues, and with efforts to diversify the economy away from dependence on oil and commodities, he said.

The stabilization fund was created as a way to protect the country from a sudden fall in oil prices.