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.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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