Russia is expected to default on its national debt after huge sanctions were imposed on it by global powers following the invasion of Ukraine 2 weeks ago.
Debt ratings agency Fitch downgraded Russian debt to a 'C' grade on Tuesday meaning that Russian issued debt is now regarded as 'junk' and the country will likely default. What this mean is that investors should not expect to buy Russian government bonds and get their money back.
Fitch said:
"This rating action follows our downgrade of the Long-Term Foreign-Currency IDR to 'B'/Rating Watch Negative on 2 March, and developments since then have, in our view, further undermined Russia's willingness to service government debt. This includes the Presidential Decree of 5 March, which could potentially force a redenomination of foreign-currency sovereign debt payments into local currency for creditors in specified countries."
Shane Oliver of investment management company AMP Capital told the BBC that while this was dire news for Russia it should not affect the rest of the world too much. He said:
"[Defaulting] will only service it in much depreciated roubles anyway and foreign investors are offloading it at fire sale prices. Fortunately, the global exposure to it is relatively low."
The Russian rouble has been in freefall since strict sanctions were imposed. Including cutting Russia off from the global payment system SWIFT and global businesses ending their operations within Russia. In recent days the UK, US and Canada have also said that they will no longer import Russian oil into their countries.
Russia supplies much of Europe's gas and oil, and while the EU seeks to limit their exposure, any cutting of Russian supplies will likely strongly affect consumers and increase inflation. Consumers across the world are already experiencing huge increases in the cost of living following the Covid-19 pandemic and the disruption to global supply chains.
Ukrainian and Russian foreign ministers are meeting today in Turkey in the hope that the deadlock may be broken and that a negotiated settlement may be achieved.
[Based on reporting by: The Daily Mail]
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