Russia’s bad behavior, which has resulted in economic sanctions and the collapse of oil from over $100 in June to $50, has taken another toll. Moody’s cut Russia’s debt rating to junk: Ba1/Not Prime (NP) from Baa3/Prime-3 (P-3) with a negative outlook. It is not as if there are loads of institutions of international agencies that have lined up to loan the country money.

Commenting on the action:

Moody’s downgrade of Russia’s government bond rating to Ba1 is driven by the following factors:

(1) The continuing crisis in Ukraine and the recent oil price and exchange rate shocks will further undermine Russia’s economic strength and medium-term growth prospects, despite the fiscal and monetary policy responses;

(2) The government’s financial strength will diminish materially as a result of fiscal pressures and the continued erosion of Russia’s foreign exchange (FX) reserves in light of ongoing capital outflows and restricted access to international capital markets;

(3) The risk is rising, although still very low, that the international response to the military conflict in Ukraine triggers a decision by the Russian authorities that directly or indirectly undermines timely payments on external debt service.

The assignment of the negative outlook reflects the potential for more severe political or economic shocks to emerge, related either to the military conflict in Ukraine or a renewed decline in oil prices, which would further impair Russia’s public and external finances.

And, “yes,” that is Lenin turning over in his grave.

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