Credit rating agencies downgrade Ukraine’s debt note, which remains in ‘selective default’
The Russian economy contracted by 4% year-on-year in the second quarter of 2022, according to official data released this Friday, which shows the impact of Western sanctions against Moscow for the military offensive in Ukraine. In the April-June period, Russia’s Gross Domestic Product (GDP) represented “96% [de su valor] in the same period of 2021, according to preliminary estimates,” the Rosstat statistics agency said, adding that a new assessment will be released on September 9.
This is the first quarterly data on Russian GDP since the start of the military offensive in Ukraine at the end of February. Since then, Western powers have imposed several rounds of sanctions that have been felt on the country’s economy. In the first quarter, the Russian economy had registered a growth of 3.5%, but should end the year in recession. The Russian central bank indicated on Friday that it projected a 2022 contraction of 4% to 6% this year and 1% to 3% in 2023, before a rebound in 2024.
Western sanctions mainly affected the energy and banking sectors, with an impact on supply chains and exports. Inflation in Russia reached its highest level in two decades in April, although then it slowed down. Even so, everything is at a high level, 15% in July compared to the same month last year.
Ukraine, in ‘selective default’
In parallel, the rating agencies S&P y Fitch They lowered Ukraine’s credit rating on Friday, considering that the agreement to restructure the country’s debt devastated by the war placed it one step away from default. S&P downgraded Ukraine’s debt note to “SD” or “selective default”, the last step before the moratorium.
“Considering the announced terms and conditions for the restructuring and in accordance with our criteria, we consider this transaction to be (equivalent) to a default,” S&P said in a statement. Fitch, meanwhile, downgraded Ukraine’s long-term rating from “C” to “RD,” or “restricted default.”
The announcements came a day after Ukrainian Prime Minister Denys Shmygal said that most of the creditors had consented to a pause in the payment of their debt of 20,000 million dollars (19,400 million euros) until 2024.
A country is considered in default when it cannot honor its commitments to its creditors, which may be States, organizations such as the IMF, or private investors in the financial markets. The default is called partial when the State does not repay part of its obligations.
A group of Western creditors, including the United States, France, Germany, Japan and the United Kingdom, gave on July 20 theirsane to reschedule the payment of interest on the Ukrainian debt at the request of kyiv. The Ukrainian economy has collapsed since the Russian invasion on February 24 and its GDP could fall 45% this year, according to World Bank estimates published in June.
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