The leading credit rating agency, Fitch, has warned that Russia will soon be unable to repay its debts.
The agency lowered its rating on Russia’s public debt, warning that a default was “imminent”.
This comes amid increased international sanctions against Russia following its invasion of Ukraine.
A credit rating is intended to help investors understand the level of risk they face in buying a country’s debt, or bonds.
A lower credit rating means that the odds of default are high, so the investor will incur a higher cost of lending to this country.
And Moscow announced earlier this week that its bond payments may be affected by the sanctions.
The downgrade from “B” to “C” is the second time that Fitch has lowered its view of Russia’s ability to repay its debt.
“This rating action follows another rating downgrade … on March 2, and developments in the situation since then have, in our opinion, further undermined Russia’s willingness to repay the public debt,” the agency said.
“The strengthening of sanctions and proposals that could limit energy trade increase the likelihood of a reaction by Russia, including at least a selective non-payment of its sovereign debt obligations,” she added.
Fitch’s move comes on the heels of the United States and Britain’s announcement of a Russian oil embargo, amid a toughening economic response to Russia’s invasion of Ukraine.
US President Joe Biden said the move was aimed at “the main artery of the Russian economy”.
Russia’s invasion of Ukraine: detailed coverage
Meanwhile, the European Union said it would end its dependence on Russian gas.
Gas is a major source of energy, so the measures are intended to affect Moscow’s public finances, although experts have warned that the move is also likely to lead to higher oil and natural gas prices on global markets.
Moscow told investors on Sunday that it would continue to repay its sovereign debt.
However, it warned that international sanctions imposed on its energy sector may limit its ability and willingness to meet its obligations.
“The actual possibility of making such payments to non-residents will depend on the prohibitive measures imposed by foreign countries on the Russian Federation,” the Ministry of Finance said in a statement.
Competing credit rating agencies, Moody’s and Standard & Poor’s, have also downgraded Russia’s sovereign debt.
This means that the country’s sovereign debt is now considered below investment grade, or “junk”, by three of the world’s largest credit rating companies.
Standard & Poor’s said its move followed measures it believed would significantly increase the likelihood of default.
Shane Oliver of AMB Capital believes defaults on Russian debt “were already happening”.
“(Russia) will only pay with the very deteriorating ruble anyway, and foreign investors are selling very cheap,” he told the BBC.
The Russian ruble had reached its lowest level after countries around the world imposed severe sanctions on Moscow.
Last month, the Russian Central Bank more than doubled the interest rate to 20 percent in an effort to stem the sharp decline of its currency.
Dozens of global brands, including McDonald’s, Coca-Cola and Starbucks, have also suspended their activities in Russia due to the invasion of Ukraine.
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