What Russia’s debt default means for the world

Russia has defaulted on its foreign-currency sovereign debt after failing to make payments to creditors for the first time in a century. Here are the implications for Russia and the world.

What is meant by a Russian ‘default’?

A sovereign debt default is when a country cannot or will not pay back its national debts, in what can be a major blow for future borrowing prospects.

Russia last month failed to make payments on its foreign-currency sovereign debt – bonds sold to international investors, who had lent Moscow money on the promise of steady repayments over an extended period. It then entered a 30-day grace period which lapsed on Sunday.

Has Russia defaulted before?

Russia has defaulted twice in recent history. The first was in 1918, in the aftermath of the Bolshevik takeover when revolutionaries refused to pay out on tsarist bonds. The second was in 1998 when it restructured debts, but then it defaulted only on domestic borrowing.

Has Russia now defaulted?

Russia had been due to make $100m (£81.5m) of ‘coupon’ payments on May 27, but failed to do so. That triggered a 30-day grace period that lapsed on Sunday, meaning a default has now occurred.

In ordinary times, one of Wall Street’s giant ratings agencies (such as S&P, Moody’s or Fitch) would make the official call that a country had defaulted. But they have had to suspend conducting such assessments due to European Union sanctions.

In their place, holders of the bonds in question can legally determine that a default has occurred if 25pc or more of them agree.

Why did Russia not make the payment?

The default was not for lack or willingness or means on Russia’s part. The country runs a huge trade surplus predominantly because of lucrative oil exports: it exported goods and services worth $58.2bn more than the value of its imports in the first quarter of 2022, according to the Central Bank of Russia. It also has relatively low debt levels.

Leave a Comment