Unrelenting financial sanctions imposed by the West have left Russia seemingly unable to make its foreign debt repayments in the correct currencies, forcing the country into ‘selective default’.

Rating house S&P Global this week downgraded the former Soviet superpower’s foreign currency rating after Russian authorities attempted to make bond repayments in roubles despite borrowing terms stipulating the debt be serviced in dollars.

The switch to roubles came after US banking authorities blocked Russia from making repayments in US dollars in response to the bloody and protracted invasion of Ukraine, leaving the country with little alternative.

Russia’s inability to meet some – but not all – of its obligations to foreign creditors is referred to as a ‘selective default’, with S&P Global noting the likelihood of bond holders converting their roubles into dollars equivalent to the amounts owed is slim.

The ratings agency added it is unlikely Russia will convert those payments within the 30-day grace period, and could be facing its first sovereign external default in more than 100 years.

With further sanctions expected to be introduced in the coming weeks, S&P Global cautioned Russia’s ability and willingness to service these debts will remain hampered.

The announcement has been met with fierce criticism from Russian Finance Minister Anton Siluanov, who threatened to sue if the country is forced into default.

Mr Siluanov said Russia has taken every step available to ensure investors received their money, but the US’s decision to block greenback-denominated payments pressured them into using roubles.

“The Russian Federation tried in good faith to pay off external creditors,” Mr Siluanov said in an interview with Russian outlet Izvestia.

“Nevertheless, the deliberate policy of Western countries is to artificially create a man-made default by all means.”

The Russian rouble hit a two-month high earlier this week despite ongoing sanctions, with analysts, including US Secretary of State Antony Blinken, attributing the recent gains to ‘manipulation’ by Russian authorities.

This ‘artificial’ price is not considered sustainable.

Sources:

• Reuters, S&P cuts Russia’s foreign currency rating to ‘selective default’
• Pwc Markets Insider, The US blocks Russia from making a $600 million bond payment as it ramps up the pressure on Moscow
• Youtube CNN, Russia has defaulted on its foreign debt, says S&P
• Business Insider, Russia says it will sue if forced into a default — which would be the country’s first external sovereign debt default in over a century
• Fortune, Sanctions were supposed to crush the Russian ruble. So why did it just hit a 2-month high?