Economic Outlook for the CIS · Economic Outlook for the CIS A Rating Agency Perspective April 10,...

Economic Outlook for the CIS A Rating Agency Perspective

April 10, 2014

Kristin Lindow, Senior Vice President

2 Presentation Title, Date [To change: go to VIEW > SLIDE MASTER and edit first slide]

Agenda 1. Outlook for Growth: no return to pre-crisis levels

2. Institutional Weakness: prevalent across region

3. Fiscal Positions: signs that debt metrics will stabilize

4. Recent Rating Actions: Russia and Ukraine


CIS: Outlook for Growth 1


CIS: No return to pre-crisis growth rates

-3

-1

1

3

5

7

9

11

13

Ukraine Moldova Azerbaijan Belarus Russia Armenia Kazakhstan Georgia

GDP growth (% year on year)

Avg 2000-2008 Avg 2009-2012 2013F


CIS: Institutional Weakness is Prevalent in the Region 2


Government Effectiveness Rankings

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

Gov

ernm

ent E

ffect

iven

ess

rank

ing

2000 2011 B median (2011) Ba median (2011) Baa median (2011)


Rule of Law Scores are Extremely Weak

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

Rul

e of

Law

rank

ing

2000 2011 B median (2011) Ba median (2011) Baa median (2011)


CIS: Debt metrics stabilizing 3


Fiscal Metrics Stabilizing

-10

-8

-6

-4

-2

0

2

4

6

8

Armenia Azerbaijan Belarus Georgia Kazakhstan Moldova Russia Ukraine

Fiscal balance in % of GDP

2007 2009 2013F


Debt Affordability Still Deteriorating but Better than Average

0

1

2

3

4

5

6

7

8

9

10

Armenia Azerbaijan Belarus Georgia Kazakhstan Moldova Russia Ukraine

Interest payments to revenue (in %)

Av 2008-2012 2013F B Median 2013E Ba Median 2013E Baa Median 2013E


External Vulnerability Varies Widely Across Region

0

50

100

150

200

250

300

350

400

Russia Kazakhstan Azerbaijan Armenia Georgia Belarus Moldova Ukraine

External vulnerability indicator*

2007 2013F Baa median Ba median B median

Source: Moody's *External vulnerability indicator: (Short-term external debt + currently maturing long-term external debt + total non-resident deposits over 1 year) / (Official foreign exchange reserves)


CIS: Recent Rating Actions 4


Government Bond Ratings Factor Scores

Sovereign FC LC Outlook Economic Strength

Institutional Strength

Fiscal Strength

Susceptibility to Event Risk

Methodology Rating Range

Russia Baa1 Baa1 RUR- High (-) Low (-) Very High Moderate (-) A3-Baa2

Kazakhstan Baa2 Baa2 Positive High Low (-) Very High (+) Moderate A2-Baa1

Azerbaijan Baa3 Baa3 Stable Moderate Very Low Very High (+) Moderate Baa3-Ba2

Armenia Ba2 Ba2 Stable Low Moderate (-) High (-) Moderate Ba1-Ba3

Georgia Ba3 Ba3 Stable Low (+) Moderate (+) Moderate (+) Moderate Baa3-Ba2

Moldova B3 B3 Stable Low (-) Very Low High (+) Moderate B2-Caa1

Belarus B3 B3 Negative Low (+) Very Low (-) High High B3-Caa2

Ukraine Caa3 Caa3 Negative Low (-) Very Low (-) Moderate (+) Very High Caa2-C

Source: Moody's

Sovereign Bond Rating: Methodology Factor Scores


Russia Sovereign Rating: Baa1 Under Review for Possible Downgrade Rating Drivers

» First Driver: Weakening of Russia's economic strength » Conflict with Ukraine

» Uncertainty over future policy actions

» Already impaired investment climate and medium-term economic outlook

» Second Driver: Increased susceptibility to event risk » Heightened geo-political risk (potential for the conflict in the Ukraine escalating further)

» Heavy economic and government dependence on high oil & gas prices

» During review, Moody's will seek clarity on » 1. Extent to which the current crisis will exacerbate the country's medium-term growth challenges;

» 2. Level of risk that the crisis escalates further;

» 3. Consequent impact on Russia's economy, public finances and external position.

14


Russia‘s Economic Strength Has Weakened…

Post-crisis recovery has lost steam (Real GDP Y/Y growth; %)

Sources: Haver, State Committee of the Russian Federation , Moody‘s

-12

-9

-6

-3

0

3

6

9

12

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Sep-

10

Dec

-10

Mar

-11

Jun-

11

Sep-

11

Dec

-11

Mar

-12

Jun-

12

Sep-

12

Dec

-12

Mar

-13

Jun-

13

Sep-

13

Dec

-13


Russia‘s Economic Strength Has Weakened…

GDP growth forecasts are becoming more pessimistic (GDP Y/Y growth; %)

Sources: Haver, Ministry of Economy, Moody‘s

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2014 2015 2016 2017 2018 2019 2020

Scenario 2 (March 2013, baseline scenario) Scenario 1 (October 2013, baseline scenario)


...But Current Account Remains in Surplus and Fiscal Position is Strong

-10

-5

0

5

10

15

20

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Real GDP growth Fiscal Balance/GDP Current account balance/GDP Gov Debt/GDP

Source: Haver - IMF WEO, OCT 2013


Increased Susceptibility to Event Risk

Flat oil output but rising gas production (Oil: mn tons; Gas: bn cubic meters)

Sources: 2000-2012: Haver Analytics, Russian State Statistical Office, 2013-2022: Ministry of Economic Development

500

550

600

650

700

750

800

250

300

350

400

450

500

550

Oil production (mln tons, left) Gas production (bln cubic meters, right)



Non-oil deficit to remain high (% of total)

Sources: Ministry of Finance, IMF, Moody‘s

0

2

4

6

8

10

12

14

16

Federal non-oil deficit, % of GDP Non-oil deficit target until 2009



• Oil funds not expected to recover pre-crisis levels (% of GDP)

• Budget-balancing oil price exceeds current prices (RHS: Oil Price in USD)

0

20

40

60

80

100

120

02468

1012141618

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

F

2015

F

2016

F

USD

Oil Stabilization Fund National Wealth Fund Reserve Fund Oil price to balance the budget (RHS)


Ukraine Sovereign Rating: Caa3 with a Negative Outlook

Political, Econonic and Currency Crisis

Conflict with Russia

New political regime and constitution

Upcoming elections

Economic recession

Very low external liquidity

Sharp Currency Depreciation

Pressure on the Banking System

Haircut required for IMF support?

1

1.5

2

2.5

3

3.5

4

4.5

12000

17000

22000

27000

32000

37000

42000

2011

0620

1108

2011

1020

1112

2012

0220

1204

2012

0620

1208

2012

1020

1212

2013

0220

1304

2013

0620

1308

2013

1020

1312

2014

02

External liquidity pressure intensifies further

FX reserves (USD m, left)

FX reserves in months of 2012 imports (right)

Sources: Haver Analytics, Moody's


Ukraine’s External Position is Extremely Stressed Government’s Foreign Currency Debt Service Schedule

0.0

0.5

1.0

1.5

2.0

2.5

Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14

Eurobonds Dom Issued FC State Enterprise Naftogaz IMF Payments


Ukraine’s External Position is Extremely Stressed Public Sector Companies’ Foreign Currency Debt Service Schedule

-

1

2

3

4

5

6

7

8

9

10

2014 2015 2016 2017 2018 2019 2020 2021+

Eurobonds Dom Issued FC State Enterprise Naftogaz IMF Payments


Ukraine’s External Vulnerability is Extremely Stressed IMF/EU/US to the rescue – will it be enough? 1. Promise of substantial fiscal injections

2. Staff-level agreement with the IMF

3. EU pledges multi-billion package of aid/loans

4. US Congress approves aid


Contacts

Kristin Lindow Senior Vice President Sovereign Risk Group [email protected] +1.212.553.3896

Thorsten Nestmann Vice President – Senior Analyst Sovereign Risk Group [email protected] +49.69. 7073.0943

mailto:[email protected]

mailto:[email protected]

Economic Outlook for the CIS · Economic Outlook for the CIS A Rating Agency Perspective April 10,...

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Transcript of Economic Outlook for the CIS · Economic Outlook for the CIS A Rating Agency Perspective April 10,...