Belarus Joins Russia In Default Territory, World Bank Says

Russia and Belarus are edging close to default given the massive sanctions imposed against their economies by the United States and its allies over the war in Ukraine, the World Bank's chief economist, Carmen Reinhart, told Andrea Shalal of Reuters.

Photo Insert: Belarus has been bogged down by election controversy and sanctions consequent to its support for the Russian invasion of Ukraine.

The specter of Russia defaulting on $40 billion of external bonds - its first major such default since the years following the 1917 Bolshevik revolution - has loomed large over markets since a raft of sanctions and countermeasures by Moscow have largely cut the country out of global financial markets.

"Both Russia and Belarus are in square default territory," Reinhart said in an interview. "They're not rated by the agencies as a selective default yet, but mighty close."

Fitch on Tuesday downgraded Russia's sovereign rating by six notches further into junk territory to "C" from "B," saying a default is imminent as sanctions and trade restrictions have undermined its willingness to service debt.

Reinhart said financial sector repercussions had been limited thus far, but risks could emerge if European financial institutions were more exposed to Russian debt than assumed. Around half of Russia's sovereign hard-currency bonds are held by foreign investors and Moscow must make $107 million in coupon payments on two bonds on March 16.

Russian corporates have just under $100 billion in international bonds outstanding. Foreign banks have exposure of just over $121 billion to Russia with much of that concentrated in European lenders, according to data from the Bank of International Settlements (BIS).

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