Minsk’s credit rating continues to fall

Standard & Poor's Ratings Services placed its 'B' long-term issuer credit rating on Minsk on CreditWatch with negative implications.

The CreditWatch placement follows a similar rating action on the Republic of Belarus. Experts view the institutional framework for Belarusian local and regional governments as centralized and unpredictable, granting little flexibility to local authorities. Minsk, therefore, does not meet the conditions to be rated above the sovereign and the agency caps its long-term rating at the level of the long-term sovereign credit rating on Belarus.

Under S&P’s methodology the indicative credit profile for Minsk was assessed as 'b+'.

According to Standard & Poor’s, the rating on the City of Minsk continues to reflect the city's very limited budget predictability and flexibility, large infrastructure needs, and high contingent liabilities. Factors supporting the rating are the city's status as the country's largest administrative, financial, and commercial center; its consistently very strong operating surplus; moderate debt burden; and good liquidity.

The institutional framework under which Belarusian regional governments operate is very centralized and evolving, which limits the predictability and flexibility of Minsk's financial policy. The central government defines the types, rates, and bases of most taxes, sets norms of regional spending through established social standards, limits regions' budget deficits, and authorizes all borrowings.

Moreover, the central government alters the share of taxes allocated to regional budgets annually and unilaterally raises salaries in the public sector, social benefits, and utility charges. This therefore exerts spending pressure on Minsk's budget. Furthermore, the central government prescribes annual limits for deficits of regional governments and authorizes their borrowings.

Experts believe that as the largest administrative, financial, and commercial center of the Republic of Belarus, Minsk is economically wealthy and diversified in a national comparison and we expect this to continue to support its budgetary performance.

The agency plans to resolve the CreditWatch listing on the City of Minsk once that on the sovereign has been resolved.