Russia’s invasion of Ukraine sparked a flurry of credit rating moves on Friday, with Standard & Poor’s downgrading Russia to ‘junk’, reviewing agency Moody’s downgrading it to junk, and Standard & Poor’s and Fitch’s swiftly cutting Ukraine due to default concerns.

It was no surprise that the financial markets of both countries were plunged into turmoil by this week’s events, which are the largest military offensive in Europe since World War II, which led to tough Western sanctions against Moscow.

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Standard & Poor’s lowered Russia’s long-term foreign currency credit rating to “BB+” from “BBB-“, and warned it could cut the ratings further, after getting more clarity on the macroeconomic implications of the sanctions.

S&P said: “In our view, the sanctions announced to date may have significant negative effects on the ability of the Russian banking sector to act as a financial intermediary for international trade.

FILE PHOTO: Banners seen outside Moody’s headquarters in Manhattan, New York. Photograph: Andrew Kelly/Reuters (Reuters/Andrew Kelly/Reuters Photo)

It also lowered Ukraine’s rating to “B-” from “B”.

Russia now has an “investment grade” rating of Baa3 from Moody’s and a BBB- equivalent from Fitch, due to one of the lowest levels of debt in the world at just 20% of GDP, and nearly $650 billion in currency reserves.

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However, a rating downgrade would reduce this rating to a “junk” or high-risk sub-investment category.

“The decision to place the ratings under review for rating downgrade reflects the negative credit effects on Russia’s credit profile from additional and more severe sanctions being imposed,” Moody’s said in a statement.

Sovereign rating reviews can take months but are likely to be faster this time around.

WASHINGTON, DC – February 22: US President Joe Biden delivers remarks on developments in Ukraine and Russia, and announces sanctions against Russia, from the East Room of the White House on February 22, 2022 in Washington, DC. (Photo by Drew Angerer / J (Photo by Drew Angerer/Getty Images/Getty Images)

Moody’s said its decision would take into account the scale of the conflict and the severity of additional Western sanctions, which have already affected some major Russian banks, military exports and members of President Vladimir Putin’s inner circle.

It added that it would also assess the extent to which Russia’s large reserves of currency can mitigate the turmoil caused by the new sanctions and the protracted conflict.

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“Moody’s will look to conclude the review when these credit effects become more evident, especially as the impact of more sanctions takes shape in the coming days or weeks,” it said.

Moody’s also put Ukraine’s already insignificant “B3” rating under review for downgrade.

In this image from a video released by the Russian Presidential Press Service, Russian President Vladimir Putin addresses the nation in Moscow, Russia, Thursday, February 24, 2022. (Russian Presidential Press Service via AP) (Russian Presidential Press Service via AP/AP Newsroom)

However, Fitch did not wait, and immediately moved to lower its rating of Ukraine by a full three notches to “CCC” from “B.”

“There is a high potential for a prolonged period of political instability, with regime change as a potential target for President Putin, increasing policy uncertainty and potentially also undermining Ukraine’s willingness to repay debt,” the report explained.

Moody’s also warned that the intense conflict could leave Kiev struggling to make debt payments.

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Scope, a smaller European rating agency, estimated that Ukraine’s government debt could jump above 90% of GDP by 2024 from about 50% now, while S&P Global warned on Friday of a series of reductions as a result of the war.

The head of the International Monetary Fund, Kristalina Georgieva, said that the IMF is studying all options to help Ukraine with further financial support.

Russia’s central bank boosted its banking sector with additional billions of dollars in foreign exchange and ruble liquidity, while the government separately pledged full support for companies affected by the sanctions.

This is not the first time that Russia has been dumped in the garbage. Moody’s and Standard & Poor’s took similar steps in early 2015 after the annexation of Crimea and lower oil prices caused the ruble currency crisis.

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Moody’s said Friday that there are “serious concerns” about Russia’s ability to manage the disruptive impact of new sanctions on its economy, public finances and financial system.

(Reporting by Mark Jones in London, Mehr Bedi and Bhargav Acharya in Bengaluru; Editing by Sam Holmes and Clarence Fernandez)