Ratings agency Fitch expects to see further sovereign downgrades in Eastern Europe as global financial worries and local banking problems bite, it said on Thursday, warning falling oil prices would also impact Russia.
Head of emerging European sovereigns Edward Parker would not be drawn on individual countries, but Fitch has much of the region on a negative outlook including Bulgaria, Estonia, Hungary, Lithuania, Latvia, Kazakhstan, Ukraine and Georgia. “I would say more downgrades are certainly likely,” he told Reuters in a telephone interview. “A lot of these countries have large current-account deficits, have had credit booms and are also going to have to deal with a recession in their main European markets.”
Several emerging European economies including Hungary, Ukraine, Serbia and Belarus have been talking to the International Monetary Fund about support packages, while growing global risk aversion has undermined local stock markets and currencies. “Asking in the IMF obviously underscores the existing problems but we would see a well-conducted IMF program with supporting finance as positive for a sovereign rating,” Parker said.
Fitch cut its rating on Georgia to B+ in August after heavy fighting began with Russian forces over the disputed South Ossetia region. International donors pledged a higher than expected $4.55 billion on Wednesday to help it rebuild, but Parker said this was not enough to up the rating. “A major aid package has been expected for some time,” he said. “If there had not been one, there would probably have been even more downward pressure on the rating. There is clearly an ongoing conflict risk without a final solution between Russia and Georgia. The heavy fighting may be over but what happened will cast a long shadow over the region.”
Georgia said on Thursday Russia was deploying an additional 2,000 troops into South Ossetia and was preparing to stir up more trouble in the breakaway region -- a charge which Moscow dismissed. Russia itself has also had to deal with mounting capital flight and global credit markets paralysis that has left local borrowers cut off from international capital markets. Fitch said earlier this week massive oil-fuelled foreign reserves left the state relatively well-placed. But Parker said collapsing oil prices -- roughly half their July levels -- and diminishing reserves as Russia moves to support its ruble currency and prop up its banking and corporate sector would ultimately undermine the rating. “It will have an impact in time,” he said, although refused to be drawn on whether that might mean months or years.
Russia announced Thursday it had spent another $15 billion of its reserves in the last week defending the ruble. Also Thursday, rival credit ratings agency Standard & Poor’s cut its outlook for the Russian Federation to negative from stable, warning of the costs of bailing out troubled banks and a rising risk of a budget deficit. (Reuters)