...Negative Rating Actions Expected: Fitch Ratings expects negative rating actions on Russian subnationals to continue, reflecting the negative trend in debt metrics. At 1 May 2014, 13 of the 42 Russian local and regional governments (LRGs) rated by Fitch (30% of issuers) had Negative Outlooks (vs two LRGs at end-1Q13). Five issuers are in line with the sovereign's rating and reflect Russia's Negative Outlook. Other issuers are concentrated in the low range of the rating scale, which reflects their weak ability to absorb shocks. Deteriorating Performance Induces Deficits: The credit quality of Russian subnationals is challenged by several factors, including uncertainty over the future of economic growth, which compresses tax proceeds. This, coupled with operating expenditure pressure, drives budget deficits in most regions. Opex is driven by new spending obligations imposed by the federal government. The tax regulation that allows the deduction of financial losses from the corporate profit...
