Russia receives downgrade
Moody’s Investors Service announced last week that it was downgrading the outlook for the government of Russia’s debt rating to Baa2 from Baa1, putting Russia’s rating just one notch above a junk rating. Moody’s also maintains a negative outlook for the future of Russia’s ratings.
According to the release put out by Moody’s, the main reasons for the downgrade and negative outlook are Russia’s increasingly subdued medium-term growth prospects, exacerbated by the Ukraine crisis and the international sanctions associated with it, as well as the gradual erosion of the country’s foreign-exchange buffers due to capital flight.
In a related decision, Moody’s has also lowered Russia’s long-term country ceilings for local and foreign-currency debt and for local currency deposits by one notch to A2 from A3 and its short-term country ceilings for foreign-currency debt to P-2 from P-1. The long-term country ceiling for foreign-currency bank deposits was lowered to Baa2 from Baa1, while the short-term country ceiling for foreign currency bank deposits was unchanged at P-2.
Analysts unsure if Mexico may follow suit
Low oil prices have also put Mexico at risk of receiving a credit downgrade in the near future. While cuts are not necessarily imminent, BNP Paribas SA’s Nader Nazmi says the country is at risk, reports Bloomberg. Mexico’s debt levels are in danger of skyrocketing, says the economist, because its economy is heavily dependent on oil revenue.
While Nazmi maintains a concerned outlook for Mexico’s future, other analysts are less pessimistic. Experts at both Moody’s and Fitch said that price shocks from oil will be largely mitigated because Mexico has hedged its oil through 2016. Shelly Shetty, head of Latin American sovereigns at Fitch said, “Low oil prices are a negative shock for fiscal accounts of Mexico. However, the near-term vulnerability for federal-government revenues is mitigated by the execution of the oil hedges.”
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