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Current Affairs

Russia’s external debt payments

Date: 23 March 2022 Tags: World Economy


Russia is due to make a dollar-denominated payment to bondholders, which may be uncertain due to the unprecedented sanctions.



This will be the first time since the 1998 financial crisis that Russia has defaulted on a bond payment.



  • This is also the first time after the 1917 Bolshevik revolution that a default in taking place on international bonds.

  • Russia is due to pay $4.7 billion by the year-end apart from the $66 million that was to be paid by Monday.


The situation

  • Russia has a grace period of 30 days to pay $117 million on bonds issues in 2013. Russia was initially reluctant to send foreign currency as payment.

  • A temporary respite was given to JPMorgan, which processed the cash and deposited it to Citigroup for giving it to bondholders.

  • Foreign investors hold $38 billion-worth of rouble-denominated sovereign bonds known as OFZs before this crisis, some of which have been due.

  • Russia has an option of alternative payments in other currencies, which needs a notice period of 15 days.


Future payment situation

  • There are temporary license provided for the receipt of interest, dividend, or maturity payments, which ends on March 25.

  • Russia still will have to make payments worth $2 billion after expiry. The biggest such test will be in May when license expires.

  • For license to continue, a significant de-escalation has to take place from Russia’s side. Otherwise Russia will be forced to service the bonds in Rouble in its onshore accounts. This will be applicable only for Euro bonds and not Dollar bonds.


Implications of default

  • In case Russia defaults on bond payments, it will be locked out of the international borrowing markets until sanctions are lifted.

  • The credit ratings of the country would fall and the interest rates will be pushed up for borrowing by the government and private companies.