Fitch Warns of ‘Imminent’ Russian Debt Default, Kremlin Accuses US of Waging ‘Economic War’

The Fitch Ratings logo is seen at their offices at Canary Wharf financial district in London, on March 3, 2016. Reinhard Krause/Reuters

Fitch Ratings has once again slashed its credit rating on Russia while warning that Moscow was likely to default on its sovereign debt payments in short order, while the Kremlin accused the United States of waging an “economic war” against Russia.

Less than a week after Fitch downgraded its rating on Russia to junk status and put Moscow on “rating watch negative” over the Kremlin-led invasion of Ukraine, the rating agency on Tuesday cut that rating even further by a whopping six notches.

Fitch has slashed Russia’s rating from “B” to “C” and noted that the downgrade reflects the rating agency’s “view that a sovereign default is imminent.”

The agency cited developments since the March 2 downgrade that, in its view, “further undermined Russia’s willingness to service government debt.”

In retaliation for a raft of biting Western sanctions, Russia has imposed capital controls to prevent foreign currency from flowing out of the country.

The developments cited by Fitch include a decree issued on March 5 by Russian President Vladimir Putin that could force Russia’s foreign-currency sovereign debt payments to be made in roubles rather than hard currency.

Fitch also cited a recent rule issued by Russia’s central bank that restricted coupon payments on Russia’s ruble-denominated government bonds known as OFZ, barring such payments to foreigners.

“More generally, 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,” Fitch added.

It comes as the West has imposed crippling sanctions on nearly the entire Russian financial and corporate system following Russia’s invasion of Ukraine, which Putin describes as a “special military operation” to disarm Ukraine and oust its leaders, who he has labeled as “neo-Nazis.”

Kyiv and its Western allies dismiss Putin’s rationale as a groundless pretext for an unprovoked war of aggression against a sovereign and democratic country.

The sanctions against Russia threaten to cast the country into its gravest crisis since the 1991 fall of the Soviet Union, with Kremlin spokesman Dmitry Peskov describing the measures as “hostile bacchanalia.”

Peskov on Wednesday also put the United States on notice for imposing a ban on imports of Russian oil and energy, saying that Moscow was thinking very seriously about how to respond.

“The United States definitely has declared economic war against Russia and is waging this war,” he said.

While Peskov did not provide details about Moscow’s response, he said Russia would do “what in the best way corresponds to our interests.”

More than 2 million people have fled Ukraine since the invasion began two weeks ago, with NATO Secretary General Jens Stoltenberg describing the situation as “Europe’s fastest-growing refugee crisis since the Second World War.”