Like the other two major rating agencies (Standard & Poor’s and Moody’s), in early March, Fitch downgraded Russia’s long-term sovereign debt to “junk” or countries at risk of default.
But the agency decided on Tuesday to lower this mark further in light of “developments that have further undermined Russia’s desire to serve its public debt.”
The lower a country’s sovereign debt rating is, the lower the creditors’ confidence in the country and the lower its ability to borrow at reasonable interest rates.
To justify her decision, Fitch cited a decree signed by Russian President Vladimir Putin on March 5 that allows debts to be repaid to lenders from specific countries in rubles rather than in foreign currencies.
The agency also drew attention to a decision issued by the Russian Central Bank, which imposed restrictions on the transfer of some bonds to non-residents.
“More generally, the tightening of sanctions and proposals that would limit energy trade increase the likelihood” that Russia will make an option that “includes at least a selective non-payment of its sovereign obligations,” Fitch said.
Fitch also noted that technical barriers, such as restrictions on the transfer of funds, could prevent Russia from repaying its debts.
If Fitch’s predictions are correct, it will be the first time since 1998 that Russia has defaulted on a sovereign debt payment.