Russia is on the brink of defaulting on its debt, according to ratings agencies and international bodies, but economists do not yet see a global contagion effect.
Russia is on the brink of defaulting on its debt, according to ratings agencies and international bodies, but economists do not yet see a global contagion effect on the horizon. International Monetary Fund Managing Director Kristalina Georgieva said Sunday that sanctions imposed by western governments on Russia in response to its invasion of Ukraine would trigger a sharp recession this year. She added that the IMF no longer sees Russian sovereign debt default as an « improbable event. » Her warning followed that of World Bank Chief Economist Carmen Reinhart, who cautioned last week that Russia and ally Belarus were « mightily close » to defaulting on debt repayments. Despite the high risk of default, however, the IMF’s Georgieva told CBS that a wider financial crisis in the event of a Russian default was unlikely for now, deeming global banks’ $120 billion exposure to Russia « not systematically relevant. » However, some banks and investment houses could be disproportionately affected. U.S. fund manager Pimco started the year with $1.1 billion of exposure to credit default swaps — a type of debt derivative — on Russian debt, the Financial Times reported last week. A spokesperson for Pimco wasn’t immediately available for comment when contacted by CNBC. The Russian state has a host of key payment dates coming up, the first of which is a $117 million payment of some U.S. dollar-denominated eurobond coupons on Wednesday. Credit ratings agency Fitch last week downgraded Russian sovereign debt to a « C » rating, indicating that « a sovereign default is imminent. » S&P Global Ratings also downgraded Russia’s foreign and local currency sovereign credit ratings to « CCC- » on the basis that the measures taken by Moscow to mitigate the unprecedented barrage of sanctions imposed by the U.S. and allies « will likely substantially increase the risk of default.
