Russia is facing bankruptcy; the World Bank warned that the disastrous sanctions put the Kremlin close to defaulting on its foreign debts. The World Bank chief economist said Russia and Belarus are now in the area of square default. Accordingly, payments of about $40 billion in Moscow foreign bonds are at risk. Analysts fear that the country will not pay the $117 million coupons to the sovereign Eurobond next week. It will have a 30-day period to pay.
Foreign investors own about half of Russia’s currency bonds; As a result, banks that bought the debt from Moscow could potentially suffer multibillion-dollar losses. France is most at risk. The country’s creditors own $4.5 billion worth of Russian government bonds. This comes after the Managing Director of the International Monetary Fund said that Russia faces a deep recession due to sanctions. This cut off access to central bank reserves. It also reduced living standards and led to the emergence of Western businesses.
It is worth noting that the large-scale default for Russia will be the first since the 1917 Bolshevik Revolution. Fitch downgraded Russia’s sovereign debt rating to “C”; moreover, it warned that default is inevitable. The fact is that Moscow is increasingly freezing from the global financial system.
Default means excluding Moscow from the global debt markets, so It can’t use Western investors to make money. However, Putin’s strategy may leave the country vulnerable. Sanctions, in any case, exclude such loans shortly.
Risks of Russia
It is worth noting that the fate of tens of billions more of corporate debt is also at stake. Edison Group’s chief investment strategist said it was difficult to assess the Kremlin’s completion game. Sanctions are likely to put a sharp contraction on the Russian economy. The ruble’s value fell after the Russian invasion of Ukraine; The stock market is closed.
On Thursday, a spokesman for the IMF said that unprecedented sanctions had caused a sharp contraction in the Russian economy; Consequently going into a deep recession. The massive devaluation of the currency leads to an increase in inflation. This drastically violates the purchasing power and standard of living of the vast majority of the Russian population. Global growth forecasts should decline next month due to the crisis.
Russia’s foreign minister said on Thursday that Russia would pay off debts to “non-friendly” countries, including Britain, the United States, Japan, and the European Union, in rubles, even though they were denominated in dollars. Currency price.
Ruble and Russian Plans
Ruble payments may be inconvenient for Western investors; Who usually expect to receive compensation in the same currency they used to buy the bonds. It can also be a default. CDS trades that pay off in the event of a default account for 71 percent of Russia’s default over the next 12 months; And 81 percent over the next five years.
The Credit Derivatives Determination Committee makes decisions regarding CDS rules; it held a series of crisis meetings to determine whether there will be repayment in rubles in non-compliance with currency rules. They will meet again on Friday as officials struggle to reach a decision.
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