Ratings agency Fitch expects further emerging European downgrades as the financial crisis bites, with Latvia at risk unless it gets an International Monetary Fund deal and Russia pressured by falling oil prices.

Fellow ratings agency Standard & Poor`s hit Russia with its first rating downgrade for a decade on Monday, and agencies have cut ratings across emerging European economies as capital flight and deleveraging take the shine off previously successful markets.

Fitch head of emerging European sovereigns Edward Parker told Reuters that with the agency having eight emerging European economies on negative outlook, more downgrades were likely. No emerging European economies had a positive outlook, he said.

"We know that historically around 60 percent of positive or negative outlooks will result in actual ratings changes," he said in a telephone interview. "So it would be logical to expect more."

Overall, he said emerging Europe was facing its greatest crisis since the end of communism, with more pain to come.

He said Latvia was the most exposed economy on negative outlook. Latvia is in discussions with the IMF over a plan it hopes will be approved by parliament on Thursday, with the finance minister warning the state would otherwise be unable to pay wages or pensions.

Alongside the other Baltic states, Latvia has come out of a credit boom into a recession, rescuing its second-largest bank last month and with its gross domestic product falling.

"Latvia clearly needs support both from the IMF and EU," said Parker. "If it does not get it then the risk of a crisis will increase and we would have to take negative ratings action."

But he said Latvia was still a long way from sovereign default because it had relatively little foreign currency debt.

Fitch downgraded Latvia in November to BBB-. Parker would not comment on how close Russia -- which it rates as BBB+ but put on negative outlook in November -- might be to a downgrade.


"I cannot talk about that except to say that Russia is on negative outlook which implies that the balance of risks is to the downside," he said.

He would not say which other emerging European economies were closest to a downgrade. Fitch also has Ukraine, Georgia, Estonia, Lithuania, Kazakhstan and Romania on negative outlook.

S&P -- which had been the last of the three ratings agencies to promote Russia to investment-grade after it recovered from the 1998 financial crisis -- attributed its Russia decision to foreign capital flight and other macroeconomic stresses, including banking problems and the falling oil price.

Parker said Fitch would also be looking at the long-term oil price as a factor in Russia`s rating.

"At the moment it is very difficult to predict the long-term oil price but lower oil prices are certainly negative for Russia and its creditworthiness," he said.

Another major worry was the outstanding private debt of Russian firms which are no longer able to refinance, being effectively denied access to global capital markets, he said, but even taking that into account Russia`s debt position was relatively reasonable.

He said Fitch was watching Russia`s diminishing foreign exchange reserves -- down roughly a quarter from their $600 billion peaks in August with intervention to support the rouble proving costly -- but said they remained massive compared to other regional countries.

Reuters via Guardian