IMF: Russia entering deep recession, purchasing power of population falling

(Patria) - The International Monetary Fund (IMF) no longer considers it impossible for Russia to default on its debts, but this should not cause a global financial crisis, agencies report.

"We no longer consider a Russian default to be improbable," IMF chief Kristalina Georgieva said in an interview with US television network CBS on Sunday. Due to sanctions imposed as a result of the invasion of Ukraine, Russia is now at risk of entering a "deep recession," Georgieva said, dpa agency reports.

The devaluation of the national currency, the ruble, has already significantly reduced the purchasing power of the Russian population, she added. The Russian central bank's international foreign exchange reserves are largely blocked as a result of sanctions, making it difficult for Russia to stabilize the ruble's exchange rate.

"Russia has the money to service its debt, but it cannot access it," Georgieva said. Furthermore, servicing public debt in foreign currencies such as US dollars or euros has become increasingly complicated.

Asked whether such a default could trigger a global financial crisis, she replied: "Not for now." The total exposure of banks in Russia amounted to about 120 billion dollars, an amount that, while not insignificant, is "not systemically relevant," Georgieva said, Reuters reports.

Georgieva said last week that the IMF would lower its previous forecast for global economic growth of 4.4 percent in 2022 as a result of the war, but said the overall direction remained positive.

Growth has remained strong in countries like the United States, which have recovered quickly from the COVID-19 pandemic, she told CBS.

The impact would be most severe in terms of rising commodity prices and inflation, potentially leading to hunger and food supply insecurity in parts of Africa, she said.