A high-ranking official in the International Monetary Fund considered that Russia’s default on its foreign debt will likely have a “limited” impact on the global financial system.
The United States and its allies imposed harsh sanctions on Russia in response to its invasion of Ukraine, but Moscow has made some payments so far.
But concerns remain regarding Russia’s ability to continue paying its debt service, especially following the US amnesty deadline that allows it to make transfers expires on May 25.
“If there is a default, I think the direct impact on the rest of the world will be very limited, because the numbers before us are relatively small from a global perspective,” said Gita Gopinath, the IMF’s first deputy managing director.
“This does not pose a threat to the global economic system,” she told Foreign Policy.
The sanctions cut Russia’s ties to the global financial system, banning most transactions except for debt payments and the purchase of oil.
The punitive measures also froze $300 billion of Russia’s foreign currency reserves abroad.
Moscow last week avoided default following completing an interest payment of $117 million on dollar bonds, transferring money through JPMorgan and Citigroup, which both confirmed with the US Treasury that the transfers were permitted.
Moscow had initially indicated that it would make its payments in rubles, which some debt rating agencies have said is a default, although some obligations are allowed to be paid in local currency.
Gopinath said a default would have serious repercussions for Russia, because re-entering the credit market “isn’t that easy”.
The last time Russia defaulted on its foreign-currency debt was in 1918, when the leader of the Bolshevik Revolution, Vladimir Lenin, refused to recognize the obligations of the deposed Tsar’s regime.
The Russian government also defaulted on domestic ruble debt payments in 1998 amid the global financial crisis. In the followingmath of this crisis, Russia collected regarding $600 billion in revenues from the sale of gas and oil.
Gopinath ruled out the idea that the repercussions of the sanctions would undermine the position of the US dollar as the dominant reserve currency in the world, but said that it might contribute to the “fragmentation” of payment systems, especially in the energy field, especially if the war continues for a long time.
“In fact, what we know is that the energy trade will not be what it used to be following this war,” she added.
High risk of default
But Moody’s, the credit rating agency, considered Tuesday that the risk of default still exists.
“The risk of default in Russia and the potential for losses for investors remains very high given the marked decline we have seen in the government’s ability and willingness to meet its debt obligations in recent weeks,” it said in a report.
The report indicated that Moscow had payments of $100 million due on May 27, following the expiry of the waiver period on such transactions.
“After that date, US residents will have to request a specific license to continue receiving debt payments, which would further impair investors’ ability to receive sovereign debt payments,” the report added.
In early March, Moody’s downgraded Russia’s debt rating from “B3” to “CA”, with a negative outlook.
In turn, “Standard & Poor’s” cut Russia’s rating from “CC” to “CCCC”, saying that the country’s debt remains “highly vulnerable to default.”
