International Monetary Fund Managing Director Kristalina Georgieva crossed wires, via CBS’s “Face the Nation” program during the weekend while saying, “Russia may default on its debts in the wake of unprecedented sanctions over its invasion of Ukraine, but that would not trigger a global financial crisis,” per Reuters.
Sanctions imposed by the United States and other democracies were already having a “severe” impact on the Russian economy and would trigger a deep recession there this year.
The war and the sanctions would also have significant spillover effects on neighboring countries that depended on Russian energy supplies, and had already resulted in a wave of refugees compared to that seen during World War Two.
The sanctions were also limiting Russia’s ability to access its resources and service its debts, which meant a default was no longer viewed as ‘improbable’.
Asked if such a default could trigger a financial crisis around the world, she said, ‘For now, no.’
The total exposure of banks to Russia amounted to around $120 billion, an amount that while not insignificant, was ‘not systemically relevant.’
Georgieva last week said the IMF would downgrade its previous forecast for 4.4% global economic growth in 2022 as a result of the war, but said the overall trajectory remained positive.
The news adds to the recent positive progress on the Ukraine-Russia peace talks and can help build the market’s risk-on mood during early week trading.