The Russian economy could be facing default soon due to the mounting cost of international sanctions, with experts worldwide predicting difficulty for the country in paying its debts.
Moody's (NYSE: MCO) was the latest bond rating firm to downgrade Russia's credit rating to junk territory, dropping the country to "Ca" on its scale. This came a week after Fitch Ratings downgraded Russia to C, clearly warning that the company believes sovereign default is imminent. S&P (NYSE: SPGI) dropped Russia's rating to CCC-.
The Big Three presents a relatively grim analysis of the borderline chaos of Russia's economy and the immense risks of the investment in debt from the sanction-battered country. That seems to be an assumption shared by the International Monetary Fund, with managing director Kristalina Georgieva telling CBS' "Face the Nation" that default was imminent.
"In terms of servicing debt obligations, I can say that we no longer think of Russian default as an improbable event," Georgieva said, reversing the IMF's original stance that default seemed unlikely. "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."
Would a Russian sovereign default cause economic issues? It certainly won't cause a global crisis akin to the housing market crash, given Russia's much smaller presence economically compared to the U.S. or China. However, bondholders and anyone possessing any other form of Russian debt face the possibility of drastically reduced returns due to payments only being possible in Rubles, the value of which continues to shrink with each week.
While restructuring has been possible with sovereign defaults in the past, such as Argentina's 2020 default following the onset of the COVID-19 recession, a Russian default would be much more complicated. Given the difficulty of negotiating restructuring with most avenues of payment blocked by sanctions, some investors even risk not being paid at all.
Business is already virtually untenable in Russia for international companies and private interests. With foreign debt-holders likely to turn away from Russia entirely, and the country's stalled assault on Ukraine ratcheting up the economic pressure with each day, the country's financial future looks increasingly bleak.