Russia will default on its debts 'imminently', Fitch ratings agency has warned

Source: Daily Mail

Russia will default on its debts 'imminently', a leading credit rating agency has warned, as sanctions over Ukraine continue to pummel the country's economy.

The warning came from Fitch Ratings on Tuesday which again downgraded Russia's sovereign debt rating farther into junk territory from 'B' to 'C,' saying the decision reflects the view that a default is 'imminent.'

Like other major rating agencies, Fitch had already slashed Russia's rating earlier this month to 'junk' status - which is the category of countries at risk of not being able to repay their debt.

'The 'C' rating reflects Fitch's view that a sovereign default is imminent,' the agency said in a statement, adding its new downgrade came because recent developments had 'further undermined Russia's willingness to service government debt.'

Russia's financial markets have been thrown into turmoil by Western sanctions after President Vladimir Putin ordered the invasion of Ukraine, raising significant concerns over its ability and willingness to pay its debts.

The agency said 'the further ratcheting up of sanctions and proposals that could limit trade in energy, increase the probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations.'

The rating firm pointed to a Presidential decree, which could potentially force a redenomination of foreign-currency sovereign debt payments into local currency for creditors in specified countries.

'This rating action follows our downgrade of the Long-Term Foreign-Currency IDR to 'B'/Rating Watch Negative on 2 March, and developments since then have, in our view, further undermined Russia's willingness to service government debt,' Fitch said.

'This includes the Presidential Decree of 5 March, which could potentially force a redenomination of foreign-currency sovereign debt payments into local currency for creditors in specified countries.'

On Tuesday, the United States and Britain announced they were cutting off Russian energy imports - the US ban is effective immediately, while London said it would phase out oil imports by the end of the year.

If Russia were to default on a debt payment, it would be the first time since 1998.

A country defaulting on its debts can have a knock-on effect on other economies, particularly those with close financial ties.

In light of the war in Ukraine and the sanctions being imposed, several countries are working to cut any dependencies they have on Russia - particularly on its resources such as gas and oil - but also other business links.

Speaking to the BBC, Shane Oliver of investment management company AMP Capital said he believed Russia was effectively already defaulting on its debts.

He also said that the knock-on effect on other nations should be minimal.

Defaulting 'will only service it in much depreciated roubles anyway and foreign investors are offloading it at fire sale prices. Fortunately, the global exposure to it is relatively low,' he told the broadcaster.