Baku. 8 July. REPORT.AZ/ Brexit will have a limited direct impact on CIS countries given the region's low level of trade and investment links with the UK, Report was told in the Moody’s international rating agency.
The CIS region's exports to the UK only amounted to 1% of the region's GDP on average between 2000 and 2014. Although only 4.1% of the region's total stock of inward foreign direct investment (FDI) originated from the UK in 2014, exposures are more pronounced for Azerbaijan (Ba1 negative), which received 17% of its total 2014 FDI from the UK, the Kyrgyz Republic (B2 stable) which received 11%, Georgia (Ba3 stable) with 10% and Ukraine (Caa3 stable) with 6%.
CIS countries would face greater risks if the anticipated Brexit-related EU growth slowdown was more pronounced. Such a scenario – while not our base case – would most likely result in the CIS region recording a decline in oil demand and prices.
‘This could have credit implications for the region's oil exporters, Kazakhstan (Baa3 negative), Azerbaijan and Russia (Ba1 negative), whose economies and fiscal metrics are already under pressure. Additionally, oil importers would be at risk from currency depreciation given their substantial foreign-currency-denominated debt’, the agency declares.
Moody’s believes that, Brexit-related banking sector retrenchment in the form of UK lending withdrawals would pose moderate risks for Armenia (B1 stable), but is negligible for other CIS countries. That said, uncertainty associated with Brexit could limit the availability of new funding to invest in the wider CIS region and could lead to withdrawals. The impact on Russia would be minimal because the economy has already adapted to limits on external funding since EU sanctions were imposed.
Sterling-denominated assets in sovereign wealth funds are likely to decline in value. However, a substantial depreciation in the euro presents a much greater risk for CIS sovereigns given the higher proportion of euro-denominated assets in their investment portfolios.