Status: 09.03.2022 09:06 a.m
Despite full state coffers, Russia is threatened with default. The rating agency Fitch sees an “immediate” risk for this, and the DIW also considers a state bankruptcy in Russia to be very likely.
The rating agency Fitch has lowered its rating for Russia’s creditworthiness even lower into the so-called “junk zone” for high-risk investments. The US agency downgraded Russia’s credit rating from “B” to “C”. Fitch assessed the risk that Russia would no longer be able to repay its national debt as “imminent” on Wednesday night.
Presidential decree and sanctions fuel fears of bankruptcy
Fitch cited “developments that have further undermined Russia’s willingness to repay the national debt”. The credit rating watchers were alluding to the presidential decree signed last weekend that could allow Russia to pay creditors of certain countries in rubles instead of foreign currency.
The rating agency also referred to the US ban on oil and gas imports from Russia that was announced yesterday: “More generally, the tightening of sanctions and proposals that could restrict energy trading increase the likelihood of a political reaction from Russia that would at least include selective non-payment of its government bonds contains.”
DIW President sees high risk of non-payment
However, the US agency is not alone in this assessment. Marcel Fratzscher, President of the German Institute for Economic Research (DIW) in Berlin, also considers a default by the Russian state to be very likely in the coming months.
Fratzscher told the dpa news agency that Western sanctions for the war against Ukraine mean there is a high risk that Russia will not service its debts to international investors. After all, Russia no longer has free access to its cash reserves.
Meanwhile, the US investment bank Morgan Stanley had already warned in a letter to its clients on Monday: “We see a default as the most likely scenario.” And ex-hedge fund manager Jay Newman recently told Bloomberg: “I would be shocked – absolutely shocked – if they bother to make their payments later this month.”
Just a technical default?
According to the financial news service Bloomberg, Russia currently has 49 billion dollars in government bonds outstanding in dollars and euros. In a week, on March 16, Russia will have to make interest payments of more than $100 million. On April 4, a bond worth two billion dollars expires.
However, if interest payments are not made in the coming week, this would not mean that Russia will go bankrupt straight away. After the first non-payment, a 30-day grace period usually begins, so the actual default would not occur until April.
In addition, due to the exceptional situation caused by the sanctions, it could initially only be a question of a technical or partial default, i.e. not yet a state insolvency in the strict sense.
Differences to the state bankruptcy in 1998
Current developments bring back memories of August 1998. At that time, the Russian government stopped servicing its internal debt due to tight budgets and allowed the ruble to be devalued.
But the starting position in 2022 differs significantly from the situation in 1998: At that time, Russia had high national debt and low foreign exchange reserves. Today, however, Russia’s treasury is bulging. The Central Bank of Russia has reserves of around $640 billion. However, due to Western sanctions, the country no longer has access to most of its foreign exchange reserves. That could now be Russia’s undoing.