The EU wants to ban Moscow's access to IMF loans if Russia goes to war with Ukraine. Economists believe that there will be nothing critical in this - the fund's money does not always go to the benefit of the state. Moreover, even without IMF money, Russia has alternative sources of lending in the global market.

Increasing EU pressure on Moscow

A number of EU countries have proposed banning Russia's access to IMF funds, writes the British edition of the Financial Times. This measure was proposed to be implemented in the event of an "invasion" of the Russian Federation into Ukraine.

The new sanctions involve freezing access to special drawing rights (SDRs), which are the IMF's unit of account. According to the publication, the restrictions developed by the US and the EU could harm the largest Russian banks.

At the end of last summer, Moscow already resorted to IMF assistance. Then the international fund provided Russia with $17.48 billion in the form of SDRs. The support was due to the policy of anti-crisis distribution of IMF funds. The amount received was then placed at the disposal of a "politically neutral" institution - the Bank of Russia.

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What to expect for Russian banks

The ban on access to IMF funds will not have a critical impact on the largest Russian banks. The financial institutions of the country do not receive any assistance from the international fund. Even the funds received at the end of August 2021 were provided to Russia to replenish its own gold and foreign exchange reserves, and not to capitalize banks, economist Tatyana Kulikova said in an interview with.

According to her, the flow of almost $18 billion cannot be considered as targeted assistance to Russia. In addition to our country, other countries of the world received financial support.

“This is a kind of quasi-money that can be used in a certain way. Russian banks received none of these funds. IMF assistance may have been significant in the context of a single country, but now such a measure is not possible. The provision of such assistance was a one-time one-time action of the international fund,” the expert emphasized.

At the same time, Doctor of Economics Georgy Kleiner noted that the interests of banks do not always correlate with the needs of the Russian economy. According to him, the final recipient and the channels through which IMF assistance is received are very important.

“Such financial assistance does not always benefit the Russian economy. Very often, funds go for other purposes, locking themselves in certain sectors, primarily banking.

In general, over the past 30 years, the IMF has not brought anything good to Russia. If import substitution is possible somewhere, then it is in this area,” the analyst concluded.

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What will happen to the Russian economy

The new sanctions against Russia developed by the EU and the US will not have much impact on the country's macroeconomics, Igor Nikolaev, Doctor of Economics, noted. Our country has a relatively low amount of external public debt and has a financial safety cushion in the form of large gold and foreign exchange reserves.

“Russian reserves are now estimated at about $630 billion. The total external public debt has almost halved since the beginning of 2014, from $375.9 billion to $206 billion by April 2021. By October 2021, the government debt amounted to $67.7 billion, in April the figures were at the level of $61 billion”,

— said the expert.

With relatively favorable macroeconomic indicators, Russia is now not dependent on IMF loans. It is important to understand that the fund provides loans only under certain conditions, which are not always in line with the interests of the state.

“IMF financial assistance can be provided, for example, for the reform of the public sector, whose share in our country is traditionally high, for the privatization of enterprises or the fight against corruption, as was the case with Ukraine. This is not always beneficial for this or that state, so Moscow is reluctant to resort to such lending, ”the analyst explained.

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Government bonds are a real credit alternative

If Russia's access to IMF funds is cut off, Moscow will have an alternative source of lending - the placement of securities in the primary and secondary markets. At the same time, Eurobonds and OFZs (ruble bonds) look like more attractive borrowing channels than applying to the International Monetary Fund.

According to Kulikova, due to the tense geopolitical situation around Ukraine, Russian securities have sharply increased their yields, which negatively affected demand from foreign investors.

“Short-term ruble OFZs have recently reached the level of 10%, Eurobonds have also jumped. However, in the last two weeks, the Ministry of Finance has not placed new OFZs, canceling auctions. This slightly reduced the yield of securities, now it has become a little less - in the region of 9.5% for "long" OFZs, ”Kulikova noted.However, she did not rule out that in the coming months the trend could change in the opposite direction. However, the external agenda will still continue to exert significant pressure on the domestic Russian bond market.

“The pause of the Ministry of Finance did not become catastrophic - the reserves allow Russia to manage for some time without issuing new OFZs.

If geopolitics subsides (it accounts for up to 1 p.p. of Russian bond yields), OFZ quotes will inevitably correct. A year ago, for example, the rate of return on them was in the region of 5-6%. When raising the key rate of the Central Bank, the bar is 8-8.5%," the analyst explained.

Nikolaev agreed that Eurobonds and OFZs would be a way out for Russia if the country's access to IMF lending was cut off. However, the analyst saw a negative trend associated with the mass withdrawal of foreign investors from the country's securities market.

“In recent days, the share of non-residents in the Russian government bond market has fallen to a record level - only 19%. A couple of years ago, similar figures were at the level of 34%. That is, the country's economy is 20% dependent on foreign creditors.

If sanctions on public debt are extended not only to the primary issue and American holders, then billions of dollars will have to be replaced in the domestic market,” the expert noted.

This, in turn, will have a negative impact on the dynamics of the Russian investment market, slowing down the pace of development of the national economy. Such a situation, according to Nikolaev, will resemble the crisis that occurred in the country in the late 90s.

“Domestic borrowings will become much more expensive, interest on loans will increase due to the increase in the key rate of the Central Bank. The state will spend more funds to finance current budget expenditures, that is, internal reserves will be consumed.

In this situation, hypothetically, the shadow of the August 1998 default may loom over the country. Then, up to 30% of all budget spending was precisely interest expenses, ”Nikolaev warned.

Back to news | However, if an Asian pivot occurs, Moscow's membership fees to the IMF will become completely worthless.

“Russia will need loans from the fund in the coming years if the country takes care of the ESG agenda. If they cut off from the IMF, they will have to turn to China.

But borrowing from Beijing always ends badly. China's appetites will go even further. We are already selling gas to the Chinese 10 times cheaper than in the world spot, eating millions from the budget for the sake of joint saber-rattling…”, Solodkov explained.

At the same time, the political and economic isolation of Russia is not the merit of the authorities of foreign states, the analyst added. In this situation, Moscow should think not about the loss of possible IMF loans, but, directly, about the very membership in a financial organization.

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