International Monetary Fund (IMF) Managing Director Kristalina Georgieva takes place in a virtual roundtable discussion with journalists, in Washington on January 14, 2021. (IMF/PTI Photo)
Washington/Moscow, March 14 (PTI) Russia may face a "deep recession," IMF chief Kristalina Georgieva has said, as she warned that the impact of the "unprecedented" Western sanctions on Moscow for its military aggression against Ukraine will be "quite severe" for the Russian economy.
IMF's Managing Director Georgieva also said that a Russian sovereign default is no longer an improbable event because the economic sanctions on Russia will prevent it from accessing foreign reserves and paying down the outstanding debt.
Half of the gold and foreign exchange reserves of the Bank of Russia have been frozen due to sanctions, Russia's Finance Minister Anton Siluanov said on Sunday.
This is about half of these reserves that we had. We have a total amount of reserves of about USD 640 billion. Currently we cannot use about USD 300 billion of these reserves, Russia's state-run TASS news agency quoted him as telling the Rossiya 1 TV channel.
In Washington, the IMF chief told CBS News on Sunday that the reason the sanactions are "unprecedented" because the "unthinkable happened, a devastating war in Ukraine."
Georgieva said the impact of the sanctions is "quite severe for the Russian economy. We expect a deep recession in Russia, and this abrupt contraction is affecting already how the Russian population is taking the heat on them.
Russian leaders have repeatedly said that the Kremlin will take appropriate steps to minimise the consequences of the "economic war" that the Western countries have declared on Moscow.
"The ruble depreciated significantly. What does it mean? Real incomes have shrunk. Purchasing power of the Russian population has significantly diminished," Georgieva said, according to the transcript of the interview provided by CBS News.
"In terms of servicing debt obligations, I can say that no longer we think of Russian default as improbable event. Russia has the money to service its debt, but cannot access it. What I'm more concerned is that there are consequences that go beyond Ukraine and Russia," she said.
The IMF, she said, was mostly concerned about the immediate neighbours of Russia and Ukraine, the Central Asian republics, the Caucasus, Moldova, because they have trade relations with both Russia and Ukraine more than the rest of the world, and because of this outflow of people refugee wave in Europe, that is of the order of magnitude of what happened in the Second World War.
"So there the impact is most significant. Beyond the immediate neighbours, there are two groups of countries we are very worried," she said.
The first group are countries that have yet to recover from the COVID-induced economic crisis. "For them, this shock is particularly painful," she said.
The second group of countries are those that are more dependent on energy imports from Russia, because there the impact on consumption, but also on inflation is going to be more prominent, she said.
Measures designed to damage the Russian economy following its 'special military operation' against Ukraine have been introduced by the US, UK and EU, among others.
The US has banned all Russian oil and gas imports and the UK will phase out Russian oil by the end of 2022.
US President Joe Biden has said the American sanctions targets "the main artery of Russia's economy" after his Russian counterpart ordered the invasion of Ukraine on February 24.
Western countries have frozen the assets of Russia's central bank, to stop it using its USD 630 billion reserves.
Meanwhile, Russia is taking action and will be able to minimise the consequences of the economic war that the Western countries have declared, Kremlin spokesman Dmitry Peskov told reporters on Monday.
He was commenting on the statements of US President Biden on the prospects for the Russian economy facing more sanctions by the West.
Measures are being taken to minimise the consequences [of sanctions]. A whole set of measures has been adopted by the Central Bank, which are being implemented. There is every reason to believe that the consequences of this economic war will be minimised, Peskov was quoted as saying by TASS news agency.
Earlier, Russia's Finance Minister Siluanov said that part of the Russian foreign exchange reserves is in Chinese currency.
However, Western countries are now putting pressure on China in order to limit trade with it, he said.
"Of course, there is pressure to limit access to those reserves that we have in yuan (Chinese currency). I think that our partnership with China will allow us to maintain the cooperation that we have achieved, and not only to maintain, but also to multiply it in conditions when Western markets are closed, Siluanov said.
The minister reiterated that the debts of countries that were "unfriendly" to Russia would be paid in rubles.
