A leading ratings agency has warned that Russia is likely to default on its debt soon as it further downgraded the country’s bonds to “junk” territory.
Fitch Ratings cut its rating of Russia almost to the bottom of its scale just days after the investment status downgrade.
It is the latest blow to the country’s creditworthiness following the invasion of Ukraine.
This week Moscow said its bond payments could be hit by sanctions.
“Further tightening of sanctions and proposals that could restrict energy trade increase the likelihood of a policy response by Russia that includes at least selective default on its sovereign debt,” Fitch said.
Fitch’s announcement came after the US and UK said they would ban Russian oil as they step up the economic response to Ukraine’s invasion.
US President Joe Biden said the move was aimed at “the main artery of the Russian economy”.
Meanwhile, the European Union announced that it would end its dependence on Russian gas.
As a major energy exporter, the measures are aimed at hitting Moscow’s finances, although experts warn it is also likely to push up oil and natural gas prices on world markets.
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On Sunday Moscow informed investors that it would continue to service its national debt.
However, she warned that international sanctions imposed on her energy industry could limit her ability and willingness to meet her obligations.
“The actual ability to make such payments to non-residents will depend on the restrictive measures that foreign states have introduced in relation to the Russian Federation,” the Ministry of Finance said in a statement.
If Russia defaults on its debt, there is a possibility of the country’s first major debt default since the 1917 Bolshevik Revolution.
In recent days, rival rating agencies Moody’s Investors Service and S&P Global Ratings have also downgraded their ratings of Russia’s sovereign debt.
That means the country’s sovereign debt is now rated as below investment grade or in “junk” territory by three of the world’s largest credit rating agencies.
S&P said the move followed measures it believed would “significantly increase the risk of default”.
Shane Oliver of investment firm AMP Capital believes a default on Russian debt “is effectively already in place”.
“It will only service it in heavily depreciated rubles anyway, and foreign investors are selling it at distress sale prices. Fortunately, the global risk is relatively low,” he told the BBC.
The Russian ruble has also hit record lows as countries around the world imposed ever-tougher sanctions on the country.
Last month, Russia’s central bank more than doubled its interest rate to 20% to prevent its currency from depreciating any further.
Dozens of global brands — including McDonald’s, Coca-Cola and Starbucks — have suspended operations in Russia due to the invasion of Ukraine.
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