Russia will soon be unable to pay its obligations due to the conflict in Ukraine, according to an international agency.
According to a renowned credit rating organization, Russia may soon be unable to pay its debts.
Fitch Ratings downgraded the country’s national debt, predicting a “imminent” default.
The action comes as international sanctions against Russia have been tightened in the aftermath of its invasion of Ukraine.
A credit rating is designed to assist investors in determining the level of risk they will encounter when purchasing a country’s debt – or bonds.
A poor rating indicates that the risk of not being repaid is significant, and as a result, an investor will charge a higher interest rate to lend to that country.
Sanctions may impair Moscow’s bond payments, the Russian government claimed this week.
Fitch has reduced Russia’s ability to pay its obligations for the second time this month, downgrading it to C from B.
“This rating action follows our downgrading… on March 2nd, and events since then have, in our opinion, substantially weakened Russia’s willingness to service government debt,” the agency stated.
“Further escalation of sanctions, as well as initiatives to restrict energy exports, raise the likelihood of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations,” the report noted.
Fitch’s move comes after the United States and the United Kingdom announced plans to restrict Russian oil as part of a stepped-up economic response to the invasion of Ukraine.
The move, according to US President Joe Biden, is aimed at “the main artery of Russia’s economy.”
Meanwhile, the European Union has said that it would no longer rely on Russian gas.
The measures are intended to hammer Moscow’s finances as a major energy exporter, but experts warn that the price of oil and natural gas would certainly rise on world markets as a result.
Moscow assured investors on Sunday that it will continue to service its sovereign debt.
It did, however, warn that international sanctions against its oil sector could limit its ability and desire to uphold its obligations.
“The actual possibility of sending such payments to non-residents will be determined by foreign states’ restrictive measures in relation to the Russian Federation,” the finance ministry said.
Rival rating agencies Moody’s Investors Service and S&P Global Ratings have both lowered their estimates of Russian government debt in recent days.
Three of the world’s major rating agencies now consider the country’s sovereign debt to be below investment grade, or in “junk” territory.
S&P said the move was prompted by actions it considered would “significantly enhance the probability of default.”
A default on Russian debt was “essentially already occurring,” according to Shane Oliver of investment management firm AMP Capital.
“It’ll only be serviced in devalued roubles anyway, and foreign investors are selling it at fire sale prices.” He told the Bazzup, “Fortunately, worldwide exposure to it is rather modest.”
Last month, Russia’s central bank more than doubled its interest rate to 20% in an effort to keep the value of the country’s currency from falling even worse.
Due to the invasion of Ukraine, dozens of major brands, including McDonald’s, Coca-Cola, and Starbucks, have ceased operations in Russia.