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Fitch has changed the outlook for its long-term ratings
Fitch has changed the outlook for its long-term ratings for St. Petersburg, Russia's second largest city, from stable to positive, the international rating agency said on Wednesday.

Fitch also affirmed St. Petersburg's ratings at long-term foreign and local currency BBB, short-term foreign currency F3 and national long-term AA+(rus).

"The change in outlook reflects the city's strong and sustained budgetary performance fuelled by its diversified and buoyant economy," Fitch said.

The ratings also consider increased capital expenditure and the low debt burden in St. Petersburg. At the same time, the agency said the ratings take into account the city's limited experience in structuring public-private partnerships.

"The positive outlook reflects Fitch's expectations that St. Petersburg's tax-driven revenue growth, underpinned by a growth rate above the national average, will allow it to sustain an operating margin above 30% in the medium-term and a low level of debt relative to current balance," the agency said.

The budgetary performance of the Baltic city is supported by a rapidly growing economy, stimulating expansion of the tax base and boosting revenue from taxes. The city registered 8.5% real economic growth in 2007, while foreign investment amounted to $6.3 billion.

In 2007, Toyota launched car production in St. Petersburg, while other leading international manufacturers - Nissan, GM, Hyundai and Suzuki - are expected to follow suit in 2008-09. The new automotive cluster is expected to strengthen the city's industry and positively impact on further expansion.

The city's strong liquidity meant it had a positive net debt situation by the end of 2007. The debt and liquidity management systems developed by the city are considered to be one of the most sophisticated amongst its national peers.

Ongoing capital expenditure in St. Petersburg increased to 29.7% of total expenditure in 2007, up from 25.4% in 2006. An ambitious investment program was financed by the city to renovate rundown infrastructure and boost efficiency in 2007. The city also invested in public sector entities in 2007, which will enhance their medium-term performance.

St. Petersburg is the second-largest city in Russia by population and is one of the largest ports on the Baltic Sea. The city contributes 3.7% to national GDP, and with some 4.6 million inhabitants, makes up 3.2% of Russia's total population.


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