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Russia is taking steps to pay international bondholders in roubles rather than dollars just days before a key interest payment on its external debt, a move that could make a debt default more likely.
Russia’s finance ministry said on Monday it had approved a temporary procedure for repaying foreign currency debt, but warned that payments would be made in roubles if sanctions prevent banks from honouring debts in the currency of issue.
Finance minister Anton Siluanov said in a statement:
“Claims that Russia cannot fulfil its sovereign debt obligations are untrue,”
“We have the necessary funds to service our obligations.”
Paying Eurobond repayments in roubles could be seen as tantamount to a default, with Siluanov accusing Western countries of trying to organise such a move.
“The freezing of the central bank and government’s foreign currency accounts can be seen as a desire from several Western countries to organise an artificial default.”
Moscow is scheduled to make a combined $117m in interest payments this Wednesday on two dollar-denominated bonds, although it has a 30-day grace period to make the payments.
The cost of insuring Russia’s debt against default has surged since the Ukraine war, as traders anticipate that these insurance contracts could be triggered if payments are made in roubles, or not made at all.
Yesterday, IMF chief Kristalina Georgieva warned that a Russian default was no longer “improbable”, as Western sanctions mean Moscow cannot access much of its foreign currency reserves.
Georgieva told CBS’s Face the Nation programme:
“In terms of servicing debt obligations, I can say that we no longer think of Russian default as an improbable event. Russia has the money to service its debt, but cannot access it.
What I’m more concerned about is that there are consequences that go beyond Ukraine and Russia.”
According to Siluanov yesterday, foreign sanctions have frozen around $300bn of the $640bn that Russia had in its gold and forex reserves,
Eurozone finance ministers will discuss the economic consequences of the war in Ukraine today at a regular eurogroup meeting, with surging energy and commodity prices likely to hit the recovery.
European markets are set to open higher.
China’s stocks have fallen heavily, with the CSI 300 down 3% after the government locked down Shenzhen in an attempt to bid to halt Covid outbreak, and investors worry about Beijing’s close relationship with Russia.
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The agenda
- 9.30am GMT: Change to the UK consumer price inflation basket of goods and services for 2022
- 12.30pm: Arrivals for eurogroup meeting in Brussels
- 3.30pm GMT: IMF to release staff report on Ukraine