History of sovereign debt defaults

© Reuters. FILE PHOTO: A Russian rouble banknote is seen in front of a descending stock graph in this illustration taken March 1, 2022. REUTERS/Dado Ruvic/Illustration

(Reuters) – Russia faces its first major external debt default since 1917 as Western sanctions in response to its invasion of Ukraine limit its ability to service foreign bonds.

Russia has $117 million in payments due on Wednesday on two dollar-denominated eurobonds. Its finance ministry has said it will make the payments in roubles if sanctions prevent it from paying in dollars – a move markets would view as a default.

Russia describes its actions in Ukraine as a “special military operation”. It has 15 international bonds with a face value of around $40 billion outstanding. Around half of the bonds are held by foreign investors.

Russia’s last major external debt default was over a century ago, when Bolsheviks failed to recognise Tsarist debt after the 1917 revolution. In 1998, Russia defaulted on its domestic debt.

The cost of insuring Russian debt against default has surged, and Russian credit spreads have widened.

Graphic: Countries with highest 5-yr sovereign CDS spread: https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkobqgvx/Countries%20with%20highest%205-yr%20sovereign%20CDS%20spread.jpg

The following graphics show statistics from Moody’s Investors Service on countries that have defaulted on their sovereign bonds over the last four decades.

Graphic: Sovereign bond defaults: https://fingfx.thomsonreuters.com/gfx/mkt/movandaeepa/Total%20bond%20defaults%20of%20Moody’s-rated%20sovereigns.jpg

During the COVID-19 crisis in 2020, the annual sovereign bond default rate surged to a record high of 4.2%, Moody’s data show. Argentina, Ecuador and Lebanon were among the nations that defaulted on their sovereign debt that year.

Graphic: Moody’s rated sovereign bond defaults since 1983: https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgaynopb/Moody’s%20rated%20sovereign%20bond%20defaults%20since%201983.jpg

Nicaragua and Ecuador were among nations that defaulted during the global financial crisis in 2008.

If Russia defaults on its debts that would not trigger a global financial crisis, International Monetary Fund Managing Director Kristalina Georgieva said on Sunday.