Moody's downgrades Russia debt to 'junk' level

Just over one month since its last downgrade of Moscow’s credit rating, Moody’s said Russia “is expected to experience a deep recession in 2015 and a continued contraction in 2016.

“The decline in confidence is likely to constrain domestic demand and exacerbate the Russian economy’s already chronic underinvestment,” it warned.

Moody’s cut the rating on the country’s bonds by one step to Ba1, “speculative” or junk grade. Previously it was Baa3.

The move also came after Standard & Poor’s invoked Moscow’s ire on January 26 by cutting its rating for the country to junk level.

Moody’s said Friday that the government’s fiscal strength “will diminish materially” in the face of continuing capital flight, further lowering the country’s access to international capital markets.

Moody’s also said that, although low for the moment, the risk is rising that the government could respond to international pressure over its role in the Ukraine crisis by deciding to slow payments on its foreign debt.

Moody’s also attached to its rating a negative outlook, suggesting the country faces potentially another downgrade in the coming months.

“It seems more likely that Russia will face additional sanctions than that current sanctions are lifted in the coming months. The associated economic risks are also biased to the downside,” it said.

The downgrade followed a week of fighting in Ukraine that appeared to undermine a brand-new truce negotiated between leaders of Russia, Germany, France, Ukraine and the pro-Moscow rebels.

On Friday, the United States, the leader in pressing sanctions on Russia, delivered some of its harshest criticism yet, accusing Moscow of “undermining” the global order by supporting the rebels.

“We call upon Russia to honor its commitments immediately with decisive action before we see more cities decimated and more lives lost in eastern Ukraine,” State Department spokeswoman Jen Psaki said. -AFP