Russia threatened with default in a few days Business

Russia faces effective bankruptcy as early as Wednesday after the World Bank warned that crippling sanctions have left the Kremlin “strongly close” to defaulting on its external debts.

Carmen Reinhart, chief economist at the World Bank, said Russia and Belarus are now in “square default territory”, with payments on around $40 billion of Moscow’s external bonds at risk.

Analysts fear the country will fail to pay a coupon of $117m (£89m) on a sovereign Eurobond next week. He will have a 30-day grace period to pay, but may be considered in default if he attempts to pay in rubles.

Foreign investors hold about half of Russia’s currency-linked bonds, leaving banks that bought Moscow debt potentially exposed to billions of dollars in losses. France is most at risk, with $4.5 billion in Russian government bonds held by the country’s lenders.

It came as Kristalina Georgieva, managing director of the International Monetary Fund (IMF), said Russia was facing a “deep recession” because of sanctions that have reduced access to its central bank reserves, reduced living standards and triggered an exodus from Western businesses.

A large-scale default would be Russia’s first since the aftermath of the Bolshevik Revolution in 1917.

Ratings agency Fitch has downgraded Russia’s sovereign debt rating to “C”, deep in junk territory, warning that a default is “imminent” as Moscow is increasingly shut out of the global financial system.

Ms Reinhart said: ‘They are not yet rated by the agencies as a selective default, but they are very close. Althea Spinozzi, fixed rate strategist at Saxo Bank, said Russia could default “as early as next week”.

A default would mean Moscow is ostracized in global debt markets, making it unable to appeal to Western investors for money. But President Vladimir Putin’s “Fortress Russia” strategy could leave the nation resilient to this, and the sanctions preclude such short-term borrowing anyway.

The fate of tens of billions more in corporate debt is also at stake.

Alastair George, chief investment strategist at investment research firm Edison Group, said it was difficult to assess the Kremlin’s “endgame”.

He added: “The typical stick that bondholders would use would be to say, ‘Okay, if you default on this debt, you’ll tarnish your reputation and you won’t be able to raise capital in international capital markets. ‘.

“But Russia might turn around and say, ‘Well, we can’t do that, anyway’.”

The sanctions are expected to lead to a sharp contraction of the Russian economy. The ruble has collapsed since the invasion and its exchange remains closed.

Speaking to reporters on Thursday evening, the IMF’s Ms Georgieva said: “Unprecedented sanctions have led to a sharp contraction in the Russian economy, leading to a deep recession.

“We are aware that a massive depreciation of the currency drives up inflation. It seriously damages the purchasing power and standard of living of a large majority of the Russian population.

She added that global growth forecasts are likely to be revised down next month due to the crisis.

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This notice was published: 2022-03-10 21:06:36

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