© . People walk near the Moscow International Business Center, also known as “Moskva-City”, in Moscow, Russia November 12, 2019. REUTERS/Evgenia Novozhenina By Andrea Shalal WASHINGTON () – Russia and Belarus are close to default given the massive sanctions imposed on their economies by the United States and its allies because of the war in Ukraine, World Bank chief economist Carmen Reinhart told . The specter of Russia defaulting on $40 billion in external bonds — the first major such default since the years following the Bolshevik revolution of 1917 — has loomed large over the markets since a series of sanctions and countermeasures by Moscow have largely cut the country out of global financial markets. “Both Russia and Belarus are in the standard area,” Reinhart said in an interview. “They’re not yet rated by the agencies as a selective standard, but they’re getting close.” Fitch on Tuesday downgraded Russia’s sovereign rating by six steps to “C” from “B”, saying default is imminent as sanctions and trade restrictions have undermined willingness to service debt. Reinhart said the impact on the financial sector has been limited so far, but risks could arise if European financial institutions were more exposed to Russian debt than previously believed. About half of Russia’s hard currency government bonds are held by foreign investors, and Moscow must make $107 million in coupon payments on two bonds on March 16. Russian companies have just under $100 billion in international bonds outstanding. According to data from the Bank of International Settlements, foreign banks have exposure of just over $121 billion to Russia, much of which is concentrated in European lenders. “I worry about what I don’t see,” Reinhart said. “Financial institutions are well capitalized, but the balance sheets are often opaque… There is the issue of defaults in the Russian private sector. One cannot be complacent.” China also quickly expanded its loans to Russia after the annexation of Crimea in 2014, she said. UKRAINE’S DIFFICULT SITUATION Analysts say Ukraine also needs debt relief this year, given its massive war-related spending and heavily indebted $94.7 billion by the end of 2021, even though the country has vowed to pay off its debts on time and in full. Reinhart said it was reasonable to expect Ukraine to seek funding, and expressed confidence that creditors would be receptive given the current situation. Ukraine could also miss an upcoming coupon payment, at least during the grace period, with no credit loss, she said. “Ukraine has and will have open doors given the very difficult financial situation,” she said. “As long as you’re still within the grace period, you won’t be defaulted.” Ukraine’s national debt includes $1.6 billion to Paris Club creditors and $4.9 billion to non-Paris Club creditors, most of which is owned by China, according to debt experts. website is not necessarily real-time or accurate. All CFDs (Stocks, Indices, Futures) and Forex prices are not provided by exchanges but rather by market makers, and therefore prices may not be accurate and may differ from the actual market price meaning prices are indicative and not suitable for trading purposes. Therefore, Fusion Media does not bear any responsibility for any trading losses that you may incur as a result of using this data. Fusion Media or anyone associated with Fusion Media accepts no liability for any loss or damage resulting from reliance on any information, including data, quotes, charts and buy/sell signals on this website. Be fully aware of the risks and costs associated with the financial markets, it is one of the riskiest forms of investment possible.
