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March 9, 2022

This is Money – Kremlin set to default on its debts as invasion of Ukraine sends the Russian economy into freefall

Russia will soon be unable to pay its debts after the invasion of Ukraine caused its economy to tank, a leading credit ratings agency warned yesterday.

Fitch Ratings said a default from the Kremlin was ‘imminent’, meaning investors who have bought Russian government bonds could find themselves out of pocket.

Ratings agencies slashed Russia’s rating earlier this month to ‘junk’ status.

This is a category reserved for countries who will struggle to service their debt. But it slashed the rating even further from a B to a C yesterday.

The agency added that this ‘reflects Fitch’s view that a sovereign default is imminent’.

The pessimism threatens to send more shockwaves through global markets, as investors prepare for the potential failure of a major economy. 

However, stock markets rebounded yesterday after days of losses, with the FTSE 100 index up 3.3 per cent, or 226.61 points, to 7190.72.

Think-tank the Centre for Economics and Business Research said earlier this week that the UK might only achieve growth of 1.9 per cent this year.

This would wipe more than £50billion of potential gains off Britain’s economy, the think-tank said.

Fitch said that recent developments in the crisis had ‘further undermined Russia’s willingness to service government debt’.

It pointed to a decree from Putin, which could potentially force investors in certain countries who owned Russian government debt to receive payment in the rapidly dwindling rouble.

Fitch said: ‘The further ratcheting up of sanctions, and proposals that could limit trade in energy, increase the probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations.’

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