What happens if Russia can’t pay its debts after western sanctions?
Russia is close to being unable to pay its debts amid sanctions imposed by the west after Vladimir Putin’s invasion of Ukraine.
The World Bank’s chief economist, Carmen Reinhart, warned on Thursday that Russia and its ally Belarus were “mightily close” to default.
A key test will come on Wednesday next week, when the Russian state has to make a $117m (£89m) payment on some of its debts denominated in US dollars. While Russia has relatively low debts and its financial system is less integrated with the rest of the world than other countries’, some analysts warn an imminent Russian debt default could have unforeseen consequences.
A default occurs when a borrower fails to make agreed payments on their debts.
The Bank of Canada and Bank of England, which track global sovereign defaults, estimate the total value of government debt in default around the world was $443.2bn in 2020 – about 0.5% of world public debt.
Recent governments to default include Argentina, Belize, Ecuador and Suriname, with nations typically failing to keep up on payments denominated in foreign currencies. Some have strong track records, including the US and the UK. However, both have defaulted in the past – including Britain in 1672 under the reign of Charles II and the US in 1862 during the American civil war.
Russia must make two coupon, or regular interest, payments on 16 March. However, it will have a 30-day grace period, meaning a default would not formally happen until at least April.
Russia has defaulted before, including during the 1917 revolution and in 1998, when the country’s economy remained weak after the collapse of the Soviet union and the costs of war in Chechnya meant it was unable to keep up with its debt payments. However, even then, Russia
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