Russia currently has an investment grade rating of Baa3 from Moody’s and an equivalent BBB- rating from S&P Global and Fitch, due to one of the lowest levels of debt in the world, at just 20% of its GDP. , and nearly $650 billion in foreign currency. reservations.
A downgrade, however, would lower that rating to the riskier “junk” or sub-investment grade category.
“The decision to submit the ratings for downgrade review reflects the negative credit implications for Russia’s credit profile of the additional and tougher sanctions imposed,” Moody’s said in a statement.
Sovereign rating reviews can take months, but this time they will likely be faster. Moody’s said its decision would be based on the scale of the military conflict and the severity of additional Western sanctions, which have already hit some of Russia’s biggest banks, military exports and members of President Vladimir Putin’s inner circle.
He added that he would also take into account the extent to which Russia’s large foreign exchange reserves are capable of mitigating the disruption caused by new sanctions and a protracted conflict.
“Moody’s will seek to conclude the review when these credit implications become clearer, particularly as the impact of further sanctions take shape in the days or weeks ahead,” the agency said.
Moody’s has also reviewed Ukraine’s already undesirable “B3” rating for a downgrade.
Fitch, however, did not wait and immediately downgraded Ukraine’s rating three notches from ‘B’ to ‘CCC’.
Explaining the move, he said: “There is a strong likelihood of a long period of political instability, with regime change being a likely objective of President Putin, creating heightened political uncertainty and potentially also undermining the will of the government. ‘Ukraine to repay its debt.’ Moody’s also warned that heavy conflict could leave Kyiv struggling to repay debt. Scope, a small European rating agency, estimated that Ukraine’s public debt could exceed 90% of GDP by 2024, from around 50% currently, while S&P Global also warned on Friday of a series of downgrades to the aftermath of the war.
International Monetary Fund Director Kristalina Georgieva said on Friday she was exploring all options to help Ukraine with additional financial support.
Russia’s central bank has bolstered its banking sector with billions of additional currency and ruble liquidity, while the government has separately pledged large-scale support for sanction-hit businesses.
If Russia is reduced to nothing, it will not be the first time. Both Moodys and S&P took similar action in early 2015 after the annexation of Crimea and falling oil prices triggered a ruble crisis.
There are “serious concerns” about Russia’s ability to manage the disruptive impact of the new sanctions on its economy, public finances and financial system, Moody’s said on Friday.