Experts warn that Russia may default on its debt on April 4

According to the New York Post, the payment that Russia must pay on April 4 is worth $2.2 billion, and creditors are much less optimistic that Russia will be difficult to pay this time.

Jay Newman, former Portfolio Manager at Elliott Management, said: “The most recent payment was just a small investment in credibility, but when Russia had to start writing checks worth thousands of dollars. billion dollars, that’s a different calculation. I think it is unrealistic to say that Russia can pay $2.2 billion.”

When Russia was due to pay its bonds last week, investors panicked because it was unclear whether the Bank of Russia would be able to use its frozen US dollar reserves to make payments. They also do not know if US banks work with the country to transfer money. There is also debate over whether Russia can repay its debt in its own currency. Russia’s Finance Ministry insists the country can pay in rubles, but people with knowledge of the contract say Russia is obligated to pay in US dollars. For some smaller installments, Russia is allowed to pay in rubles, but for previous payments of $117 million and an upcoming payment of $2.2 billion, the terms oblige Russia to pay. payment in US dollars.

Russia avoided default last time. However, debt experts are pessimistic about things to come. They say they don’t think Russia’s ability to meet its debt repayment obligations last week means Russia can do so too, especially since Russia faces debt payments of nearly 4.8 billion dollars this year. April 4 will be the first big test.

The US Treasury Department has made it clear that Russia can use frozen funds to pay off debts until May 25. It may then need to get money from other sources such as borrowing money or selling oil to countries like China or India.

“If they’re paying with funds that they can’t access, that’s basically an inflationary sum,” Mr Newman said. But once they have to pool money to pay bonds instead of other payments, it’s a tougher decision.”

This is not just an economic issue. Even if Russia is able to pay off its debt, some experts suggest that Russia may refuse to fulfill this obligation.

Mr. Newman said that harsh sanctions imposed by the US could backfire and that blocking Russia’s access to global markets and commerce would leave Russia with no incentive to continue paying its debts. “It is unusual for a country to be subject to increasing and persistent economic sanctions and still pay its debt,” he said. These sanctions have unintended consequences.”

In addition to Mr. Newman, other experts also suggest that Russia may not make the payment of billions of dollars in April.

“I don’t expect Russia to pay off that debt completely,” said Robert Kahn of political risk consultancy Eurasia Group. This is a political issue, not just an economic one. Why do they want to give us our money back when we decouple them from the economic system?”

Although Russia owes US banks nearly $15 billion, economists say a Russian default will not significantly affect global markets in the long term. According to the International Monetary Fund, Russia is relatively isolated from the rest of the world making it not too involved in the system. However, the Ukraine-Russia conflict and its consequences have taken a toll on the global economy.

The Organization for Economic Cooperation and Development estimates that the conflict in Ukraine will reduce global growth by one percentage point and increase inflation by more than two percentage points. Other economists say the war has increased the likelihood of a US recession from 10% to 35% next year.