The risk is considered
"imminent"
by the financial rating agency Fitch: the default of payment awaits Russia impacted by the economic sanctions taken in reaction to the invasion of Ukraine.
On Tuesday, its rating was once again downgraded from "B" to "C", in view of "
developments which have further undermined Russia's willingness to repay public debt
".
Le Figaro
takes stock of the danger of non-payment which could have serious consequences for the country.
What is a State Default?
A country is considered in default of payment when it is unable to honor its financial commitments in due time with its creditors, which may be States, financial institutions (International Monetary Fund, World Bank, etc.) or investors in the financial markets.
The default is qualified as partial when the State does not reimburse part of its obligations.
The government itself can declare default by announcing that it is ceasing to repay its debt maturities, as Russia did in 1998. The announcement can also come from a rating agency after a grace period of 30 days following the observation of the non-payment.
The default can also be formalized by a private creditor, publicly revealing that a country has stopped reimbursing it, or even by the American agency ISDA (International Swaps and Derivatives Association), which governs CDS, a sort of insurance against default of payment.
Can the State be forced to repay its loans?
There is no guarantee that sovereign borrowings will be repaid.
Contrary to a case of default of payment by a company, where it is possible to recover assets by way of reimbursement, it is not, on the other hand, possible in the case of a characterized default of payment for a State, to seize a public good located in this country to sell it, according to the experts interviewed by AFP.
Read alsoMoscow adopts a list of “hostile” countries which will be reimbursed … in rubles
It is nevertheless possible to restructure the debt, which means rescheduling repayments and, most often, reducing or canceling debts.
This implies that the country is in
“default”
, but that it nevertheless hopes to reach an agreement with its creditors.
What loan is it in the case of Russia?
Russia has a bond loan which matures on April 4 and which concerns two billion dollars.
"This loan was issued on the London Stock Exchange in US dollars
," explains Slim Souissi, deputy director of the IUP in Caen, a banking specialist who worked for Fitch and wrote his thesis on state failure.
The question will be whether or not Russia has been able to pay its debt maturities on April 4, its creditors being mainly American investment funds.
What are the risks that default will materialize?
In the case of Russia, credit rating agencies, including Fitch, S&P Global Ratings and Moody's, consider that it is a question of will and that the loans may not be reimbursed in full in the face of sanctions taken by the Western countries in response to the Russian invasion of Ukraine.
“The country has the means to repay this debt issued on the financial markets, but can decide not to do so to respond, for example, to Western financial sanctions,”
explains the professor.
Russia, which has almost doubled its stock of gold and foreign currencies since 2014-2015, has foreign exchange reserves which reached more than 640 billion dollars as of February 18.
To preserve them, Moscow has also recently limited the outflow of currencies abroad.
What are the consequences if the default hypothesis is confirmed?
"The creditors will lose the amounts lent but this should not cause a systemic crisis,"
said Slim Souissi.
A conflicted debt restructuring arrangement seems out of place to debt specialists.
A payment default automatically cuts off a statement of the financial markets and jeopardizes its possible return for a few years.
It took twelve years for Russia to be able to return to borrow on the markets after defaulting on its domestic debt in 1998, when its economy was destabilized by a financial groundswell from Asia.