The credit rating of Russia and Ukraine was downgraded by the rating agencies S&P, Moody’s and Fitch, in the midst of the war between Kiev and Moscow, according to Bloomberg.
In particular, S&P downgraded Russia to BB +, below the investment grade, from BBB- and warned of further downgrades, citing “strong” international sanctions imposed on the country after its invasion of Ukraine. S&P also downgraded Ukraine from B- to B.
Both countries were also downgraded by Moody’s, which rates Russia at Baa3, one notch above the “junk” category, and Ukraine at B3, six notches below the investment grade. Fitch downgraded Ukraine to CCC level from B, placing it seven notches below the investment grade and at the same level as El Salvador and Ethiopia.
The war, which entered its third day on Saturday, prompted the United States and its allies to impose a series of sanctions on Russia. US President Joe Biden has imposed sanctions on his Russian counterpart Vladimir Putin and several of his close associates as Russian troops meet with Ukrainian resistance in the Ukrainian capital.
“The announced sanctions could have a significant direct and secondary impact on economic and external trade activity and financial stability,” S&P said in a statement. “We also expect that geopolitical tensions will erode private sector confidence, burdening growth.”
Russia remains financially stable thanks to international reserves and low debt, the Moscow finance ministry said in a statement on Saturday, responding to announcements by rating agencies. The finance ministry “will continue to pursue a responsible economic and fiscal policy,” the statement said.
Russian and Ukrainian bonds have been hit in international markets. Ukrainian dollar bonds fell an average of 53% this week, while Russian bonds lost 45%, according to Bloomberg.
Russia’s invasion of Ukraine this week represents “a significant further increase” in geopolitical risk and severe sanctions against Russia that “could affect the repayment of government debt,” Moody’s analysts said in a statement.
“The final severity of the impact of the new sanctions on Russia’s credit profile will depend on their scope, the areas they target and the degree of coordination between Western countries,” they added. For Ukraine, meanwhile, “an escalating conflict could jeopardize the government’s liquidity and external position, given its economy’s dependence on foreign currency financing.”
According to Fitch analysts, the Russian invasion has posed “increased risks to Ukraine’s public finances, macroeconomic stability and political stability.”
“It all depends on how long this war lasts,” said Jack McIntyre, a portfolio manager at Brandywine Global Investment Management in Philadelphia. “I would say that Ukrainian bondholders have to worry about more than one downgrade.”
Source: Capital
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