(The following statement was released by the rating agency)
March 01 - Fitch Ratings has assigned Russia’s Mari El Republic a Long-term foreign and local currency rating of ‘BB’, a Short-term foreign currency rating of ‘B’ and a National Long-term rating of ‘AA-(rus)'. The Outlooks for the Long-term ratings are Stable.
The ratings reflect the republic’s track record of sound budgetary performance, moderate direct risk and low contingent risk. However, the ratings also factor in the small size of the region’s economy with wealth indicators below the national average.
A consolidation of the region’s budgetary performance with a narrowing of the deficit before debt to below 5% of total revenue coupled with the extension of the debt maturity profile would be positive for the ratings. Conversely, the deterioration of its budgetary performance along with the growth of direct risk to above 40% of current revenue would be negative for the ratings.
Fitch expects Mari El’s budget to consolidate its sound performance in 2012-2014, with the operating balance averaging 13% of operating revenue. This will be supported by the stable growth of tax revenue and current transfers and prudent fiscal management. Fitch also expects the region’s full-year deficit before debt variation to be about 7% of total revenue in 2012, which is in line with 2011.
Fitch expects the region’s direct risk to increase up to RUB7bn by end-2012, or 38% of current revenue and then stabilise at 37%-38% in 2013-2014. Fitch expects the republic’s payback ratio to be at about three years in 2012-2014, matching the debt portfolio’s average maturity. The region’s direct risk is 48.4% composed of bank loans, followed by subsidised federal budget loans (26.8%) and loans contracted from International Finance Corporation (24.8%). The region’s contingent risk is low, comprised of outstanding guarantees (totalling RUB440m by end-2011) and minor public companies’ debt.
The Mari El Republic is a part of the Privolzhsky Federal District, which lies in the eastern part of European Russia. The region contributed 0.2% of the Russian Federation’s GDP in 2009 and accounted for 0.5% of the country’s population. The local economy, despite below national average wealth indicators, proved resilient to the adverse macro-economic environment in 2008-2009. Gross regional product according to the administration’s estimates increased by 3.9% yoy in 2011.