OREANDA-NEWS. March 22, 2011. Standard & Poor's Ratings Services said today that it has lowered its long-term issuer credit rating on the Belarusian City of Minsk to 'B' from 'B plus '. The outlook is negative.

“Our downgrade of Minsk reflects our downgrade, on March 15, 2011, of the Republic of Belarus (foreign currency B/Negative/B; local currency B plus /Negative/B),” S&P said in a statement.

"We view the institutional framework for Belarusian local and regional governments as centralized, and because of this we cap the long-term rating on the city of Minsk at the level of the long-term sovereign rating on Belarus," said Standard & Poor's credit analyst Felix Ejgel.

Under our methodology we assess the indicative credit level for Minsk as 'B plus '.

We believe that 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.

The negative outlook reflects that on Belarus as the rating on Minsk is capped by that on the sovereign.

"We would lower the rating on the city if the sovereign ratings were lowered," said Mr. Ejgel.

Even if the sovereign rating remains unchanged, we could lower the rating on Minsk within the next 12 months in the unlikely event of a significant weakening of the city's liquidity position. This could result from a rapid accumulation of short-term foreign currency debt, either directly or via the municipal companies, amid worsening borrowing conditions. This could occur if the city had to enlarge its capital program without adequate cofinancing from the central government.

We could take a positive rating action on the city, however, if there is a positive rating action on the sovereign, and at the same time Minsk's moderate deficit after capital accounts and its solid cash reserves are maintained, and its debt accumulation slows, in line with our base-case scenario.

The rating on the City of Minsk continues to reflect our view of the city's very limited budget predictability and flexibility, large infrastructure needs, and high contingent liabilities. 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.