Russia may soon be unable to pay its debts

Russia may soon be unable to pay its debts Source: Pixabay

Fitch, one of the world’s leading credit agencies, has warned that Russia may soon be unable to pay its debts as the cost of the war begins to bite.

The company, who provide credit ratings for international investors, recently cut Russia’s rating from B to C – the second time in a month. The impact of the rating is twofold, firstly it will signify to lenders that there is a significantly increased risk in investing or lending to the country and secondly it will increase the cost of borrowing on the international market.

International loans are priced according to risk and very often include a clause that allows the lender to adjust the price according the rating provided by the ratings agency specified.

The warning from Fitch follows the statement from Moscow earlier this week wherein they said its ability to make bond repayments may be affected by the sanctions.

“This rating action follows our downgrade… on 2 March, and developments since then have, in our view, further undermined Russia’s willingness to service government debt

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 US and the EU have said they will target the main artery of the country’s economy, with the US banning Russian oil imports and the EU working to end its reliance on Russian gas.

Although the moves are designed to bring Russia’s economy to its knees, it is likely to result in a rise in the price of oil and natural gas on global markets.

Moscow did say on Sunday that it would continue to service its sovereign debt, however it added that international sanctions could affect both its ability and willingness to do so.

However, it warned that international sanctions imposed on its energy industry could limit its ability and willingness to meet its obligations.

The Finance Ministry said in a statement: “The actual possibility of making such payments to non-residents will depend on the limiting measures introduced by foreign states in relation to the Russian Federation.”

Moody’s Investors Service and S&P Global Ratings have also slashed their assessments of Russian sovereign debt, effectively moving their status into “junk” territory.

Some believe a default on international debt is already happening with the rouble in collapse, internal interest rates up 100% and banks limiting cash withdrawals.

Concerns that the country will soon be unable to pay its debts is according to some sources less of an issue than many might expect, with exposure to the country relatively low.


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Written by

Peter McLaren-Kennedy

Originally from South Africa, Peter is based on the Costa Blanca and is a web reporter for the Euro Weekly News covering international and Spanish national news. Got a news story you want to share? Then get in touch at [email protected]

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