Chinese agency lowers Ukraine sovereign debt rating in Russian invasion aftermath
- China Chengxin says further downgrades could follow as repayment capacity falls
- Ukraine is now in the same category as Venezuela and one notch lower than Myanmar
“The sudden geopolitical incident will have an all-around negative impact on Ukraine, including an accelerated economic recession, soaring fiscal burdens, a sudden rise in fragility and systemic risks. Its sovereign repayment capability will be damaged,” Beijing-based Chengxin said.
The CCCg rating for Ukraine reflects weak debt repayment capacity and high risks, and Chengxin said further downgrades could follow. Its rating is now in the same category as Venezuela and one notch lower than Myanmar.
The agency warned that Ukraine would face much higher risks in international markets and its forex reserves of US$27.7 billion would not be able to cover sovereign debt maturing this year.
“The outbreak of war will put further pressure on the Ukrainian economy, as it will devastate its industrial and agricultural production capacity, upend investor confidence and lower export orders. Its economy is expected to fall into a deep recession in 2022,” it said.
Chengxin’s downgrade reflects concerns about growth in the world’s second-largest economy, which is facing headwinds from US trade tensions, pandemic controls and the global economic uncertainties.
Also on Friday, international rating giant S&P lowered Russia’s long-term foreign currency credit rating to BB+ from BBB-, also junk status, saying Western sanctions could carry significant negative implications for the Russian banking sector’s ability to act as a financial intermediary for international trade.
S&P warned it could lower ratings further.
Moody’s put Russia and Ukraine on the list of review for downgrade. Russia now has an “investment grade” rating of Baa3 from Moody’s and an equivalent BBB- from Fitch. A further downgrade would mean it would reach the junk category.
Wall Street bankers also reportedly urged the United States to not ban Russia from the Swift global interbank payments system in a further round of sanctions.
Ukraine is a key exporter of corn to China, with a recorded volume of 8.2 million tonnes last year, or 29 per cent of its total. Bilateral trade value rose 31.7 per cent from a year earlier to US$17.3 billion in the first 11 months of last year, while China reaped US$6.6 billion of project contracts in the same period.
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Meanwhile, Russia, which is under heavy sanctions from the US, the European Union and other Western economies, is China’s second-biggest source of crude imports after Saudi Arabia. Bilateral trade value jumped 35.8 per cent to US$146.9 billion last year.
“The conflict is also having a serious economic impact, which will worsen the longer it continues,” Kristalina Georgieva, managing director of the International Monetary Fund, said on Friday.
“Beyond Ukraine, the repercussions of the conflict pose significant economic risks in the region and around the world.”
The IMF, which previously projected a 3.6 per cent expansion of the Ukrainian economy for this year, said it was exploring all options for further financial support, including under the existing standby arrangement for an outstanding amount of US$2.2 billion, as well as emergency financing.
