S&P cuts Russia's debt to junk rating

Credit-rating agency Standard & Poor's downgraded Russia's foreign-currency sovereign debt to junk status this week. S&P's move marks the first time in ten years that Russia's debt has been deemed junk. This latest blow to the Kremlin came as renewed fighting destroyed a fragile ceasefire in eastern Ukraine. The other two main ratings agencies, Moody's and Fitch, have maintained their view that Russia's credit is investment grade.

What the commentators said

The currency reserves have been dwindling rapidly and companies' external debt accounts for a hefty chunk of GDP. As the sanctions have cut off access to international financial markets, the state may well have to bail out firms that can't keep up with their payments. Sanctions, the plunging rouble and a rise in non-performing loans as the economy sours are undermining banks, which will need to be recapitalised by the state, noted Capital Economics. The plunging oil price will also hit the public finances.

The bigger picture, said Barley, is that President Putin failed to move beyond dependence on oil and construct "a more resilient diversified economy that would attract investment". With interest rates at 17% to contain inflation and prop up the slumping currency, and investment hampered by a capricious and chaotic state, the outlook is grim.

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In the past year or so the state "has become even more pervasive and if anything even more corrupt, reducing the efficiency and the agility of the economy", said Sergei Guriev in the FT. "Russia has in effect moved back ten years." According to Moody's, due to a deep recession in 2015-2016, the decade to 2018 is likely to see no real economic growth at all.