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 is unable or unwilling to repay its national debt, which can be a major blow to future loan prospects.
Russia last month failed to make payments on its foreign currency sovereign debt – bonds sold to international investors, which Moscow has had money slowly due to the promise of steady repayments over a long period. It then entered a 30-day grace period that expired Sunday.
Has Russia failed 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 debt, but then it only failed with domestic loans.
Has Russia now failed?
Russia had to make $ 100 million (£ 81.5 million) in ‘coupon’ payments on May 27, but failed to do so. This caused a grace period of 30 days which expired on Sunday, meaning that a default has now occurred.
In normal times, one of Wall Street’s giant rating agencies (such as S&P, Moody’s or Fitch) would make the official call for a country to fail. But they had to suspend the conduct of such assessments due to European Union sanctions.
In their place, holders of the relevant mortgages may legally determine that a default has occurred if 25pc or more of them agree.
Why did Russia not make the payment?
The standard was not due to lack or willingness or means on Russia’s part. The country has a large trade surplus mainly due to profitable oil exports: it exported goods and services worth $ 58.2 billion 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.