To justify its decision to downgrade Russian debt, Fitch is citing a decree that could allow Moscow to return funds to certain countries’ creditors in rubles instead of foreign currencies.
Ratings agency Fitch on Tuesday downgraded the rating of Russian debt again, which means that the risk of sovereign default, in its opinion, is “inevitable”. Fitch, like other major agencies S&P Global Ratings and Moody’s, already in early March placed the country’s long-term debt rating in the category of countries that are likely to be unable to repay their debt due to the accumulation of economic sanctions against it after the invasion of Ukraine.
Read alsoWar in Ukraine: how Russia prepared for economic sanctions
But on Tuesday it decided to downgrade it further from B to C, due to “events that have further undermined Russia’s willingness to repay the national debt.” However, the lower this rating, the less creditors will trust the country and the less it will be able to borrow money at reasonable rates.
To justify its decision, Fitch cites a presidential decree signed on March 5 that could allow Russia to reimburse certain countries’ creditors in rubles rather than foreign currency. The agency also mentions the decision of the Russian Central Bank to limit the transfer of certain bonds to non-residents.
Read alsoHow the Ukrainian economy gradually moved away from Russia
“More generally, tougher sanctions and proposals that could restrict energy trade increase the likelihood of a Russian political reaction that includes, at a minimum, selective default on its sovereign obligations,” Fitch notes. It is also possible that technical barriers, such as blocking money transfers, prevent debt repayment. Moscow’s default will be the first since 1998.
SEE ALSO – War in Ukraine: what is the place for diplomacy?