(Adds Moody's quotes, background and context)
March 28 Moody's Investors Service on Friday
placed Russia's government bond rating of 'Baa1' on review for a
downgrade as the conflict with Ukraine weighs on the country's
The credit rating agency said the crisis in Ukraine could
significantly hurt investor sentiment and further weaken
Russia's medium-term growth prospects, which had already been
lowered by the Russian authorities in 2013.
Another driver underlying the review is the agency's concern
regarding Russia's "rising susceptibility to political and
financial event risk, primarily driven by the risk of further
escalation of hostilities," Moody's said.
Russia's seizure of Crimea earlier this month after the
ousting of Ukraine's pro-Moscow president following mass
protests has triggered the worst East-West crisis since the Cold
"The rating agency believes that the current crisis could
significantly dampen investor sentiment for several years to
come by adding to existing deterrents to investment posed by
Russia's weak rule of law and high levels of corruption,"
Moody's said in a statement.
"This could further damage the country's economic outlook
given its large investment needs. It could also further
constrain its ability to diversify the economy away from
over-reliance on oil and gas," the agency said.
Moody's said it acknowledges Russia's large foreign-currency
reserves and limited external debt repayments and the current
strength of the government's balance sheet. But it noted that
"wider economic sanctions and potential countermeasures by
Russia could, were they to materialize, erode those financial
Earlier this month, Standard & Poor's and Fitch Ratings
revised their outlooks for Russia to negative, saying they were
concerned about the potential impact of EU and U.S. sanctions on
Russia's economy and business environment. The United States and
other Western states have sought to isolate Russia
diplomatically and charge it an economic price for the
annexation of Crimea.
Targeted U.S. and EU visa bans and asset freezes against
senior Russian and Crimean officials, with the threat of tougher
economic sanctions to come if Putin goes any further, have
accelerated capital flight from Russia.
During its ratings review, Moody's said it will seek to
obtain greater clarity on the extent to which the current crisis
will exacerbate the country's growth challenges as well as the
resilience of Russia's economy, public finances and external
position if the crisis worsens.
Russia's economy is already in trouble, with growth slowing
to under 2 percent, inflation up and investment levels stagnant
around 20 percent, well below necessary levels.
Russian Economy Minister Alexei Ulyukayev said on Thursday
capital outflows could total around $100 billion this year, and
would slow economic growth for full-year 2014 to well below
earlier forecasts of 2.5 percent.
(Reporting by Narottam Medhora and Will Dunham)