Russia unlikely to meet debt obligations as Western sanctions bite, Moody’s warns

One of the world’s top credit rating agencies has raised concerns over Russia’s ability to service its debt as Western sanctions hobble Moscow’s economy.

Moody’s said its move to downgrade Russian debt to the second-lowest rung on its ratings ladder was “driven by severe concerns around Russia’s willingness and ability to pay its debt obligations”.

Moscow has retaliated to Western curbs by imposing strict capital controls that will choke payments on its stock of debt.

Western countries have frozen Russia’s central bank’s assets – which include dollars, euros and gold – in a bid to hit its ability to protect the economy and the rouble. 

However, the measures are likely to also reduce the country’s ability to fulfill its foreign debt obligations.

An alliance of European countries, the UK and US have launched tough sanctions designed to freeze Russia out of the global financial system and business community, including booting Russian banks out of the Swift international payments system, in response to Moscow invading Ukraine.

The rouble weakened around 40 per cent last week, hitting record lows against the dollar.

The “risk of a default occurring has significantly increased and that the likely recovery for investors” is bleak, Moody’s said.

Russian government debt is now rated Ca by Moody’s, the second-worst rating the agency provides.

“At the Ca rating level, the recovery expectations are at 35 per cent to 65 per cent (of face value),” Moody’s added.