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December 11, 2007 |
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SVERDLOVSK OBLAST: S&P Affirms Long-Term Rating at 'BB' Standard & Poor's Ratings Services affirmed its 'BB' long-term issuer credit rating on Russia's Sverdlovsk Oblast. At the same time, the outlook was revised to positive from stable. "The outlook revision reflects continuing economic growth in the oblast," said Standard & Poor's credit analyst Irina Pilman. The rating on Sverdlovsk Oblast, one of Russia's strongest industrial regions, is constrained by the oblast's low budget flexibility and predictability. These are exacerbated by potential volatility of corporate profit tax proceeds, inflation-driven growth of operating costs, and large investment needs. These factors are offset by strong economic growth and the administration's intentions to maintain solid budgetary performance and keep the debt burden low in the medium term. According to the three-year financial plan, the oblast management intends to keep budgets balanced and finance its capital needs without recourse to debt. Sverdlovsk's economic growth is well above the Russian norm, with three-year (2004-2006) average gross regional product growth at a high 9.5%. S&P expects at least 7% average annual growth over 2007-2010, based on the modernization plans of large industrial companies. Economy and living standards could boom in the longer term if the region benefits from federal financing and from becoming one of the key transportation hubs on the crossroads between Europe and Asia. "We expect Sverdlovsk Oblast's high economic growth to continue to underpin revenue growth, helping the oblast management maintain good budgetary performance despite rising public sector salaries and infrastructure modernization," said Ms. Pilman. "We also assume that debt will remain low." While the oblast will have to approve a multiyear budget starting from next year, an upgrade could result from the introduction of a reliable and realistic capital program that would address the main infrastructure requirements without compromising the current prudent financial and debt policies. Conversely, if the oblast fails to implement its planned measures, the outlook could be revised back to stable. A sharp decrease in revenues and a debt increase, which we view as unlikely, could pressure the rating. |
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