Russia’s National Settlement Depository (NSD) on May 27, fortunately, paid coupons in foreign currency on two Eurobonds, a representative for NSD told reporters, a move that could mean Russia may have again avoided a default.
Russia is on the verge of a unique kind of debt crisis which investors say would be the first time a major emerging market economy is driven into a bond default by geopolitics, instead of empty coffers. The NSD said it paid foreign currency in coupon payouts on Eurobonds maturing in 2026 and 2036, each due on May 27.
Russia moved up two payments on its international debt last Friday in the latest effort to avert a default, just days ahead of the U.S. decision not to extend a key license authorizing transactions on Russian Eurobonds payments in foreign currency.
Russia was now developing a new mechanism to service its dollar-denominated debt that will enable it to execute payments on Eurobonds due in June without the waiver issued by the United States, Finance Minister Anton Siluanov said in a TV interview broadcast on Friday.
Russia is due to pay coupons on Eurobonds maturing in 2027, 2028, and 2048 in end-June.
The country has encountered the possibility of sovereign default since Western countries placed severe and widespread restrictions in the wake of its decision to deploy tens of thousands of troops into Ukraine on February 24. The country has been all but excluded from the global financial system and has seen around half of its $640 billion reserves abroad frozen.
However, Russian officials have said the country had sufficient funds to service its debt and that what other countries may deem a default would be a technical and coordinated event.
Siluanov said last week that Russia will continue paying its state Eurobond obligations in roubles if not capable of paying in foreign currency, and will sustain its role as a dependable borrower by every means possible.
Siluanov has said there would be no effect on the economy if the U.S. announces that Russia is in a technical default on its Eurobonds.
But analysts had more doubts about the impact of a possible fallout on the Russian economy in the long term, as Russia’s deficit could grow very sharply as a result of its invasion of Ukraine, said Takahide Kiuchi, an economist at Nomura Research Institute.
“The Russian economy cannot stand without financing or money from abroad. So in this sense, no access to the global market could reduce the potential of growth of the Russian economy in the long term.”