The World's Top 3 Credit Rating Agencies Simultaneously Downgrade Russia's Credit Rating to 'Junk'

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Following Standard & Poor's (S&P), Fitch and Moody's, the world's three major credit rating agencies, have simultaneously downgraded Russia's credit rating to 'junk (non-investment grade)'. These rating agencies warned that Russia's economy would suffer significant damage as the invasion of Ukraine continues and Western sanctions expand.

According to foreign media such as CNBC on the 2nd (local time), Fitch downgraded Russia's credit rating to junk level, stating that Russia's economy is facing a crisis due to Western sanctions following the invasion of Ukraine. Fitch downgraded Russia five levels below investment grade to 'B' and assigned a 'negative' outlook, indicating the possibility of further credit rating declines.

In the report released that day, Fitch warned, "The strong Western sanctions in response to the Ukraine attack are delivering a severe shock to Russia's credit fundamentals," adding, "This could lead to a serious economic crisis." Russia's previous credit rating was known to be 'Triple B,' two levels higher than junk.

Following Fitch, Moody's also downgraded Russia's credit rating to junk on the same day. Moody's announced that it lowered Russia's sovereign credit rating from 'Baa3' to the junk rating 'B3.' Moody's stated, "The strong Western economic sanctions have increased the risk of disruptions in Russia's sovereign debt repayments," and added, "We are also considering further downgrades of Russia's credit rating."

Earlier, S&P had already downgraded Russia's credit rating from 'BBB-' to the junk level 'BB' on the 25th of last month. S&P warned, "The Western sanctions announced targeting Russia will have significant direct and indirect effects on Russia's economy, trade, and financial stability."

Russia is known to have approximately $40 billion in external debt. The Central Bank of Russia announced that foreign exchange reserves amount to $631 billion, but more than $400 billion is deposited in Western financial institutions in New York, London, Berlin, etc., and is subject to sanctions, so some analyses suggest that the actual amount immediately available is only $12 billion. Bloomberg reported, "There are concerns that Russia might deliberately default on external debt repayments as retaliation against Western sanctions."

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