Page 83 - RUSRptSept18

"The unpredictability of US domestic politics and sanctions policies mean the risk of a further escalation of sanctions against Russia represents a downside risk to the economy and the sovereign Outlook," the agency writes.
Fitch believes that "Russia's twin budget surpluses, low government debt, fiscal assets, local market and large foreign exchange reserves means that it would be able to withstand sanctions constraining foreign investors from holding and transacting in new sovereign debt, although it would add to the cost of financing."
The agency does not believe that US sanctions that prevent the servicing of existing sovereign debt are likely. The base case scenario also excludes sanctions that prevent Russian banks from transacting in US dollars.
In line with Russian government's updated forecast , the agency expects GDP growth to reach 1.8% in 2018 and then slow to 1.5% in 2019 due to the impact of VAT hike on household consumption. Growth is seen recovering to 1.9% in 2020, but will remain weaker than the forecast 'BBB' median expected to average 3.2% in 2019-2020.
Notably, Fitch estimates potential average growth at 1.2%, while the government targets boosting GDP growth to 3%-3.5% in the medium term. Such goal "would involve raising gross capital formation to 25% of GDP by 2023, from 21% in 2017," which Fitch does not view as realistic "given the unfavourable business environment."
As for the increase in the retirement age proposed by the government, it could partially ease the decline in the labour force as well as facilitating greater pension payouts, the agency believes. But the largely unpopular reform has led to a number of protests across the country, "which could lead to some dilution".
83 RUSSIA Country Report September 2018 www.intellinews.com