Fitch rates Karelia bond A(rus)

Fitch Ratings said it assigned the Republic of Karelia's forthcoming issue of RUB500 million domestic bond with a maturity of three years and six months a national long-term rating of A(rus). The republic has long-term local- and foreign-currency ratings of B+ and a national long-term rating of A(rus). The short-term rating is B.

The outlook is positive, which reflects expectations of a recovery in budgetary performance in 2007 due to accelerating economic growth and lower spending needs resulting from increased budget spending efficiency and the high quality of management, Fitch said.

The republic has overcome the pressures put on the budget by the 2006 social sector and administrative reforms and has also compensated for the adverse effect of lower corporate profits in the same year, the agency said. Operating performance is expected to rebound in 2007, with operating and current margins seen remaining close to 10%, Fitch added.

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