Goldman Sachs says Russia's debt problems are 'technical' and don't reflect its underlying strength

• Goldman Sachs has said Russia's debt problems are "technical" and don't accurately reflect underlying dynamics.
• The bank's analysts said the Ukraine war and related sanctions are damaging the country's creditworthiness.

Goldman Sachs has said Russia's sovereign debt problems are "technical" and don't accurately reflect the underlying creditworthiness of the government.

The Wall Street bank on Thursday lowered Russia's sovereign risk score, a measure it adjusts each quarter to reflect the creditworthiness of governments around the world. A lower sovereign risk score means the country is less likely to pay its debts, in Goldman's eyes.

Goldman analyst Farouk Soussa said in the note that the Ukraine war and related sanctions are damaging Russia's credit fundamentals.

However, he said the relatively modest downgrade in its risk score "is out of step with expectations of an imminent Russian default."

"In our view, this reflects the technical nature of Russia's debt servicing issues, which we think are far-removed from the underlying credit dynamics."

Goldman said Russia's score would have improved, were it not for the country's invasion of Ukraine and the resulting Western sanctions, because higher commodities prices have boosted its trade balance.

Russia's government is widely expected to tumble into default on May 4, when a 30-day grace period on two of its dollar-denominated bonds expires.

Under the technical process of making bond payments, governments typically send money through to correspondent banks who ensure the cash gets to investor

Russia failed to make $650 million of interest and principal payments due on April 4 in dollars, after the US Treasury blocked American banks from processing the transactions. It instead sent rubles through to the country's National Settlement Depository.

Russia has argued that it has the money to pay, but sanctions are forcing it into an artificial default. Its finance minister, Anton Siluanov, has raised the prospect of legal action.

Traditionally, investors demand much higher rates of interest or cut the government out of international markets altogether if a country defaults.

But Goldman's statement that Russia's debt problems are "technical" raises questions about how international investors will treat the country. Before its invasion of Ukraine, Russia's position as a global energy exporter meant it was seen as a reliable borrower.

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