Russia Default Would Have 'Limited' Global Impact: IMF Official

The consequences for the global financial system if Russia cannot pay its foreign debts are likely to be "limited," a senior IMF official said Tuesday.

The United States and its allies have imposed tough financial sanctions on Russia in retaliation for its invasion of Ukraine, but Moscow so far has made debt payments.

Still, concerns remain about its ability to continue to service its loans -- especially after the May 25 expiration of a US exemption that allows the transactions.

"If there were a default, I think the direct effect on the rest of the world would be quite limited, because the numbers that we're looking at are relatively small from a global perspective," said Gita Gopinath, the number-two official at the Washington-based crisis lender.

"It is not a systemic risk to the global economy," although some banks have "greater exposure," she said in a discussion with Foreign Policy magazine.

The sanctions effectively have severed Russia's ties to the global financial system, prohibiting most transactions except for debt payments and oil purchases.

The measures also froze the government's stockpile of $300 billion in foreign currency reserves held abroad.

Moscow last week avoided default after it made a $117 million interest payment on two dollar-denominated bonds, sending funds through JPMorgan and Citigroup, which confirmed with the US Treasury Department that the transactions were allowed.

Moscow had initially indicated that it would make the payments in rubles, which debt ratings agencies said would be considered a default. However, some obligations allow payment in the local currency.

A source close to the matter told AFP on Tuesday that JPMorgan received another $66 million payment in US dollars, although the source could not confirm if the funds had yet been sent to Citi.

A default would have serious implications for Russia, since reentering the credit market "is not that easy," Gopinath said.

The government owes about $40 billion in dollar- or euro-denominated debt, and only half of that is held by foreign creditors -- a relatively small amount given the size of the economy and its oil earnings.

Russia last defaulted on its foreign currency debt in 1918, when Bolshevik revolution leader Vladimir Lenin refused to recognize the obligations of the deposed tsar's regime.

The government missed payments on domestic, ruble-denominated debt in 1998 amid a financial crisis.

In the wake of that crisis, Moscow amassed about $600 billion in reserves, largely from oil and natural gas sales.

S&P Global Ratings last week downgraded Russia's debt rating from CCC- to CC, saying the country's debt was still "highly vulnerable to nonpayment."

Gopinath dismissed the idea that the fallout from the sanctions would undercut the US dollar as the world's dominant reserve currency, but said it could contribute to the "fragmentation" of payments systems and shift global trade, particularly in energy, and especially if the war is prolonged.

"For a fact we know that energy trade will never look the same again after this war," she said.

Countries might also reconsider how much they hold of certain currencies, she added.