The risk of technical default in Russia is quite real. When the West targets the foreign currency assets of the Bank of Russia, it wants this to happen. However, experts believe that this won’t ruin the Russian economy or severely hit Kazakhstan. The exchange rate will continue to decline though because of sanctions. Aydarkhan Kusainov thinks that the exchange rate between the Russian ruble and Kazakhstan tenge isn’t well balanced.
According to Kusainov, even if Russia deаfaults it wouldn’t have a severe impact on the Russian economy as all possible sanctions have already been announced.
«Sovereign gold reserves of Russia have been frozen by the U.S. on a unilateral basis. This is nonsense. In this situation, default means nothing; it’s just a word. They’ve frozen everything. What are they going to do next? They have imposed every sanction they can. The investment rate of Russia has reached the bottom of the barrel. Every rating related to Russia is pre-default,» said the economist.
Kusainov believes that the Russian economy will not be severely hit by this and the vast majority of companies that have left the country will return soon.
«After the pandemic businesses still struggle to rebound. Russia is a really big market and this will drive businesses to think about the situation rationally. For example, Boeing has been showing negative results for three years in a row. The company has a debt of $4.3 billion and to stay afloat it has to lay off its personnel. If Boeing rejects providing service for Russian planes it would go bankrupt. Amid all this hysteria about the potential collapse of the Russian economy, I would suggest taking a look at the EU and the U.S. How long would they be able to support these sanctions? Handling millions of refugees is a serious burden for infrastructure in western countries that drives oil and gas prices high while many businesses are voluntarily leaving the big market. I think this would not last for long,» the expert said.
Risks for Kazakhstan
As Rasul Rysmambetov, a Kazakhstan financier noted the chance Russia would default is 90%.
«The problem is not a lack of money in Russia, they just have been frozen. I think they can negotiate and some part of those assets will be unfrozen to allow the Bank of Russia to pay the debt. The country has assets for this purpose. And we shouldn’t forget that a sovereign debt may have been paid for years, this is normal,» the expert noted.
However, Rysmambetov warns that Kazakhstan should brace for the negative impact of trade balance.
«Kazakhstan used to buy Russian securities and this may cause some negative consequences. We can’t just sell them now because by doing so we just absorb the losses. Secondly, in any case, we are neighbors and of course, the situation around Russia affects us through trade balance. Russian product prices have been soaring. On the other hand, there is a risk that Russian products that used to head to Europe may flow into Kazakhstan’s market. If this influx of goods is big, this may hit local producers,» said Rysmambetov.
Also, the expert said that the correlation between the ruble and Kazakhstan’s currency isn’t so hard.
«We are linked to the ruble, no doubt, but this is a loose leash. It means that the correlation is still here but it’s not as hard as it used to be. For example, if the Russian ruble loses 100% of its value, tenge will devaluate by 18%. Of course, it also hurts. We have to take some actions to avoid a situation when trade balance with Russia would hit us,» said the expert.