Ratings agency Moody’s has warned that Russia might have defaulted on its debt since it tried to service its dollar bonds in rubles due to Western sanctions.
Though some Russian eurobonds issued after 2018 do have conditions that allow for payment in rubles, those issued prior to 2018—including the bonds maturing in 2022 and 2042—must be paid in dollars. Investors did not obtain the “foreign currency contractual promise” on the due date, Moody’s pointed out.
If Russia is considered to have defaulted, it would be the first time the country defaulted on foreign bonds since the years following the Bolshevik Revolution in 1917. In 1998, Russia defaulted on its domestic debt worth $40 billion.
Earlier on April 9, ratings agency S&P Global had cut down Russia’s rating to “selective default” on similar grounds after Moscow used rubles to make coupon and principal payments on dollar-denominated eurobonds on April 4.
S&P Global also predicted that as sanctions against Moscow are tightened, Russia’s ability to meet foreign debt obligations will be impeded. Russia’s external state debt was at $59.5 billion as of Feb. 1. However, the country’s corporate sector has racked up much more debt.
Following Russia’s attack on Ukraine, the foreign currency reserves held by the Russian central bank at U.S. financial institutions were frozen. Washington continued to allow Moscow to make some payments, but in early April, the U.S. Treasury fully cut off Russia’s access to those funds.
The Kremlin has called for a new global financial system to replace the present one dominated by the West. Moscow is pushing for the BRICS nations—Brazil, Russia, India, China, and South Africa—to trade in national currencies and integrate payment mechanisms.
The BRICS alliance represents 40 percent of the global population and over 20 percent of the world’s gross domestic product.