OREANDA-NEWS. January 13, 2011. Standard & Poor's Ratings Services said today it assigned its 'Bplus' long-term issuer credit rating to the City of Minsk, the capital of Belarus. The outlook is negative.

"The rating reflects our view of the city's very limited budget predictability and flexibility, large infrastructure needs, and high contingent liabilities," said Standard & Poor's credit analyst Felix Ejgel. "Nevertheless, we consider that 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 all support its creditworthiness."

Despite economic difficulties, the city's official unemployment rate is low, while its estimated GDP per capita of about USD 8,000 in 2009 is 1.5x the national average. We expect the city to demonstrate a consistently very strong operating performance, providing solid self-funding capacity despite rising personnel and interest spending.

Nevertheless, we note that private investment in the city economy is limited. Minsk therefore has to maintain high capital spending both directly from the budget and via a large number of municipal companies, which exposes it to large contingent liabilities.

We forecast that rising infrastructure needs will result in expanding the city's deficit after capital accounts as a percentage of total revenues to 8% on average in 2011-2013, from 1.2% projected for 2010. However, we also believe the city's good debt-raising capacity will help it absorb rising capital spending with only modest debt accumulation. We expect the city's tax-supported debt to increase from about 10% of consolidated operating revenues in 2009, but to remain below a modest 60% until 2014.

Minsk has taken out no direct debt over the past five years except for short-term loans from the central government and small domestic bonds. Instead, it has expanded its borrowings through municipal companies. Nonetheless, we expect that the debt accumulation of these companies will slow over the medium term because the city will likely borrow externally in 2011.

The negative outlook on Minsk is capped by that on the (foreign currency Bplus/Negative/B, local currency BB/Negative/B)."We would lower the rating on the city if the sovereign rating was lowered," said Mr. Ejgel. "Even if the sovereign rating remains unchanged, we might lower the rating on Minsk if the city had to enlarge its capital program without adequate co-financing from the central government's budget. This could lead to an accumulation of the city's debt, either directly or via municipal companies."