Fitch downgrades Russia’s long-term rating and points to ‘huge shock’

The international rating agency Fitch Ratings sharply – by six steps at once – lowered Russia’s long-term sovereign rating in foreign currency – from “BBB” (investment grade) to “B” (highly speculative category), which means a significant probability of default.

Now Russia’s rating from Fitch is on a par with the Belarusian one. Libya, Mongolia, Nigeria have the same rating, RBC reports.

As noted in the rating agency, the international sanctions imposed on Russia in response to a special military operation in Ukraine represent a “huge shock” to the fundamental indicators of the country’s creditworthiness and could undermine its willingness to service public debt.

However, Fitch believes that the sanctions imposed by Washington on the reserves of the Central Bank of the Russian Federation and transactions with the Russian Ministry of Finance will still allow the country to continue servicing external debt in a timely manner, but there is no clarity on this issue yet.

Meanwhile, analysts at the American investment bank JPMorgan came to the conclusion that due to economic sanctions, the Russian economy is in danger of default.

Recall that on February 21, 2022, Russian President Vladimir Putin signed decrees recognizing the independence of the self-proclaimed Donetsk and Luhansk People’s Republics (DPR and LPR), and on February 24 he made an emergency appeal to the Russians and announced a special military operation in Donbass. In his speech, he stated that “circumstances require decisive action from Russia” and stressed that “Russia will not allow Ukraine to have nuclear weapons.”

In response to Russia’s actions, Western countries (USA, Canada, European Union, Great Britain, Japan) announced new, tougher sanctions against the Russian Federation, including financial and economic ones.

In particular, Russian banks fell under the sanctions, including Sberbank, VTB, Novikombank, FC Otkritie and Sovcombank, and for a number of state-owned companies it was difficult to attract foreign capital.

Later, the EU countries and the United States agreed to disconnect Russian banks that fell under sanctions from the international system of interbank transactions and information exchange SWIFT. In addition, it was decided to freeze the assets of the Bank of Russia, which will create difficulties for its use of international reserves. EU countries also pledged to take steps to limit the sale of citizenship — the so-called “golden passports” that allow wealthy Russians connected to the Russian government to become citizens of EU states and gain access to their financial systems.

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