Russia claims it has made first debt payment and avoided a default

A sovereign default can lead to a banking crisis and higher prices for consumers.
A sovereign default can lead to a banking crisis and higher prices for consumers. Copyright Shizuo Kambayashi/AP2010
By Jorge LiboreiroVassilis Glynos
Share this articleComments
Share this articleClose Button
Copy/paste the article video embed link below:Copy to clipboardCopied

There were fears that Moscow would default on its bond payments after having its assets frozen due to the invasion of Ukraine.


Russia claimed to have made payments to investors on Thursday despite having its assets frozen under Western sanctions and avoiding defaulting on its debts.

"The payment order on the repayment of interest on bonds (...) with a total value of $117.2 million... was carried out," the Russian Finance Ministry said in a statement.

There had been fears this week that Russia would default on the payments given strict measures against Russian banks in response to the war in Ukraine.

Western sanctions slapped on Russia's Central Bank are preventing the institution from using almost half of its $640 billion in foreign reserves to pay back its creditors.

What is a default?

Countries raise money to finance their budget by issuing governments bonds. Investors and institutions around the world buy these bonds under the assumption they will get their money back with higher interest rates. Repayments are scheduled to be made in a timely manner.

This sovereign debt is usually owned in foreign currencies, which means a struggling government cannot simply print more money of its national currency to have fast access to liquidity and appease its creditors.

When an economic crisis becomes particularly challenging, an indebted country might find itself unable to repay some or even all of its accumulated debts.

If the government fails to honour a payment, the country officially enters into default.

Besides huge losses for investors, defaulting often entails devastating consequences for citizens and businesses and can lead to long-lasting reputational damage.

Watch the video explainer to learn more about what default means.

Share this articleComments

You might also like

Breaking down the €137 billion in EU funds that Brussels has unfrozen for Poland

Can Europe help pro-democracy Belarusians as Lukashenko tightens grip on power?

Exclusive: Fraud office handling complaints over jobs at European trade mark agency