The concept of default is on the tip of the tongue of almost every Russian today. And although few today can define its economic significance, the question of whether Will Russia face a default in 2018? worries many.

The modern economy of the Russian Federation is unstable, and unpaid external debts, the number of which has recently increased significantly, do not contribute to strengthening the current situation. So, default, in simple terms, is usually called non-repayment of debt.Its characteristic is that it precedes bankruptcy because if the debt is not paid, therefore, the borrower becomes insolvent.

The main reasons for non-payment of debt (nationwide) may be the following problems:

There are several types of economic defaults: technical, corporate, sovereign and cross. The first type is the most difficult, because the borrower (in this case the state) does not fulfill its financial obligations without “good” reasons, and there are no visible obstacles to non-fulfillment of obligations.

The second type (sovereign) develops against the backdrop of an economic downturn and is characterized by long-term economic stagnation, everything that is observed today on the territory of the Russian Federation, so it is not entirely logical, many people think about what awaits Russia in 2018. Will there be a default? In a country, one can also say by its ability to pay certain interest on accumulated financial bonds, if debts are not paid, then it is worth thinking about the negative development of the event.

Cross-default on a national scale is very rare, because it is characterized by failure to fulfill financial obligations on loans, but everyone should have an idea about it, because no one is immune from the development of such a situation.

What to expect in 2018?

Separately, it is worth discussing the issue regarding what will happen to the Russian Federation in 2018. Economic forecast of default has quite a chance for some development, because the problem of financial deficit in certain Russian regions is incredibly acute, and in the near future it can only get worse (this data is given by one of the leading professors at the Higher School of Economics, Igor Nikolaev).

2018 should be significant in the sense that the well-known “May” presidential decrees will have to be implemented, according to which the income of public sector employees should not only increase but also be equal to the average wage level in each specific region. It was precisely because of the implementation of the decrees that the problem of the budget deficit worsened, because the president set a goal to implement them at any cost. However, will this price later turn out to be too high?

However, thinking about Is Russia expecting a default? the expert confidently replies that such a development is unlikely. The federal authorities, according to his forecast, will not allow a sharp escalation of the situation in the state, if only because the next presidential elections are planned for 2018, and before this event the situation in the country is usually idealized.

The funds to cover budgetary needs in the Reserve Fund of the Russian Federation will very soon dry up (closer to the middle of 1918), but money can also be taken from the National Welfare Fund, and it will be necessary to use it to provide financial support to the regions. However, frankly speaking, the problem of budget deficit in the regions will persist for many years.

What else are experts talking about?

More accurate data regarding further developments can be obtained from video about Russia facing default in 2018, where experts express different points of view and reflect on the likelihood of this event developing. Regional expert Natalya Zubarevich, for example, is sure that there simply cannot be a default, although many today are talking about the development of the so-called “default of the regions” (individual parts of the country). Today, many regions have significant financial problems, but they will have to be solved on a state scale, and not in individual regions, because they cannot coexist separately, just like their problems (although today the total financial debt for different regions is about 2 trillion rubles).

Due to the unstable political situation in the country, which has a negative impact on the Russian economy, people are beginning to fear that Russia will experience a crushing default in January 2018 and the dollar rises to 150 rubles per unit. Not all Russians can explain the rationale for the term “default,” but this word is in the language of ordinary citizens and people are trying to understand whether Russia will face a default in 2018?

Those who are optimistic blame the fifth column and say that a default in Russia has been expected for several years, but it never happens. At the same time, they pay attention to the USSR, which suffered greatly from default at the end of its life, and note that Russia has a stronger leadership that will not allow the collapse of the ruble and the country’s economy.

Others are confident that a default will occur earlier than 2018 and recall that in 2014 the ruble collapsed by more than 2 times against the dollar and euro. In 2016 and 2017, national banknotes behave predictably and errors of + - a couple of rubles no longer frighten anyone. Western experts claim that the Russian economy has coped with Western sanctions and the worst is behind us, is that true?

Will there be a default in Russia in January 2018? expert opinion latest news

The issue of financial deficit in many regions of Russia is very acute and in the near future the situation may only worsen, so technical default in 2018 has the right to exist.

1. Will there be a technical default in Russia in January 2018, and is there even a threat of default, which Russians fear so much?

Financial experts, just like ordinary citizens, disagree. They agree on one thing - Russia really faces a default in 2018 or a little later. Threats always exist given the instability in the global economic system.

What anti-Russian sanctions are worth and it remains to be seen how Donald Trump will apply them in the future. If the US Senate gets the European Union to cover gas pipelines like Nord Stream 2, or even convince them not to buy Russian gas in favor of their shale, then the situation will worsen to such an extent that a global financial crisis is not far off. We can only believe that the EU is not so stupid as to undertake such an adventure. However, they will fight against new anti-Russian sanctions and are even considering the possibility of introducing them.

Video: Experts about the default in Russia in January 2018, threats

The coming 2018 will be rich in various events; first of all, many will be waiting for reports on the implementation of the “May decrees” of the president. However, the implementation of the May decrees is unlikely, given that the income of state employees will have to become no less than the average salary in the region where the person lives. An interesting point: it was precisely because of the May presidential decrees that the problem of the budget deficit only worsened.

One of the threats of default in Russia in 2018 is the presidential elections; there are too many factors that affect the country’s economy. Starting from who will become the new president and will he change at all?! to external threats in terms of tightening the US sanctions policy, which does not shun any measures that could worsen the economic situation in Russia; presidential is an excellent time to begin destabilizing actions.

1. VIDEO: Will there be a default in Russia in 2018? Latest news after the 2018 elections
   

However, leading professor at the Higher School of Economics Igor Nikolaev is confident that such a bad development of events, in the form of an upcoming technical default in 2018, is unlikely. According to his forecast, the federal authorities will not allow the economic situation in the country to worsen for the same reason - the presidential elections, before which the government begins to work in the mode that people expect and, as a rule, the economic situation always improves before the elections.

Considering the huge reserves of currency in the country’s reserve fund, the volume of which as of 08/01/2017 is $16.91 billion, in the worst case scenario they will be depleted only by mid-2018, so a default in January 2018 should not be expected. But by the middle of the coming 2018 it’s quite possible, but this is in theory.

1. VIDEO: Default in Russia has already begun - Vladislav Zhukovsky

In addition to the Reserve Fund, there is the National Welfare Fund, which amounts to $74.72 billion as of August 1, 2017, with its help the government will be able to fulfill its obligations throughout 2018.

By the way, in June 2017, Russian Finance Minister Anton Siluanov said that the reserve fund and the national welfare fund would be merged, but did not give an exact date.

“I do not exclude that we can consider consolidating the resources of these reserve funds in order to create a single volume of financing resources for sources of the budget deficit,” said Anton Siluanov.

Watch the video where experts share their opinions regarding the upcoming default in Russia in 2018.

The current situation in the economy makes all citizens of the state think about whether there will be a default in Russia. A fall in oil prices on the world market, a real rise in prices for goods within the country, sanctions from Western countries and an escalation of the military conflict. All this worries the average person and is the pressing agenda. It depends on the chosen political course whether there will be a repeat of 1998 and whether the country will face a default.

What it is

In simple words, default is the inability to pay off debts. The word “default” itself is borrowed. Translated from English it means “failure to fulfill obligations.” As an economic phenomenon, “default” can also be called “bankruptcy”, the inability to pay a debt or its interest. Only the word “bankrupt” is more often used in relation to a borrower, an individual or legal entity, and “default” is used in relation to the state.

Types of default

Default can be of two types. Full or technical. In case of complete default, the country is declared insolvent to pay any debts and obligations. It leads to decline in all spheres of life and to the depreciation of the national currency. The International Monetary Fund can solve the problem and help such a state.

The second default option is the most common and less dangerous. A technical default is declared in the event of temporary difficulties in paying debts and obligations. In the event of a technical default, the country has the opportunity in the near future to restore reserves and pay off debts by selling, for example, state property and enterprises.

A country that violates the clauses of the contract that secure the financial side and delays or stops payments is declared a technical default. What this is can be explained in simple words using the example of Ukraine. After non-payment of debts to Russia at the beginning of 2016, a technical default was declared in Ukraine.

Preconditions for default

Economics textbooks cite a number of factors leading to this situation. By comparing them with the real situation in the country, we can conclude whether a default is possible in Russia.

1. Income does not correspond to the planned one. For example, the Russian budget for 2015 was calculated at high oil prices, when the price fell, and revenues also decreased. Accordingly, the budget did not receive enough money, and planned expenses had to be cut. If the government had not responded to changes in oil prices, the country would have faced default.
2. Decrease in income due to non-payment of taxes and lower prices for exported goods.
3. Economic crisis;
4. Political upheavals and sudden changes in political course (for example, termination of previously concluded contracts or changes in social policy and failure to fulfill obligations).
5. Force Majeure.

Will there be a default?

The standard of living of the population has fallen, this can be seen in all areas. The economic crisis also hit both citizens and businesses hard. According to statistics, a large number of Russians have lost their jobs due to reductions in production capacity, sanctions and the bankruptcy of some enterprises. A Russian’s income decreased in 2015, while inflation increased. The exchange rate of the ruble against the dollar and euro is constantly declining. Ordinary people began to predict a default in Russia.

Expert opinion on this matter is contradictory. However, most of them adhere to the positive scenario. If Russia is threatened with default, then only a technical one. The correct course of our government protects us from bankruptcy.

Gold reserves

Today, gold reserves exceed the size of external debt, which makes it possible to avoid an even greater fall in the ruble. As long as the size of gold and foreign exchange reserves and the level of GDP exceed the size of the country's debts and payment obligations, default is impossible. At the moment, any debt of Russia can be repaid by the Central Bank. In the future, if Russia does not move away from a commodity economy, and the price of oil continues to fall or remains at its lowest level, this will lead to a shortage of public funds.

Therefore, with almost one hundred percent certainty, the question of whether there will be a default in Russia in 2016 can be answered: “No.”

If not default, then what?

According to research and expert forecasts, the economic situation in Russia may begin to stabilize only by the end of the year. The decline in the economy is primarily associated with an increase in payments to public sector sectors (teachers, doctors, cultural workers). The 2016 budget includes 1 trillion rubles for this, which is 35% of total expenses.

Tariffs are also projected to increase by more than 1.5 times. Prices for some services have already increased, and, unfortunately, will continue to increase.

Experts predict a rapid increase in the debts of municipalities and regions, which could lead to their bankruptcy.

Due to the fact that profit tax contributions to the state budget by regions are decreasing, the budget deficit will steadily increase. To avoid this, the government will have to cut spending again.

Preconditions for default. Sanctions

Central Bank analysts and financial experts do not give positive forecasts about the economic situation in the country for the coming year. Sanctions and the current geopolitical situation are often cited as the main reason.

Due to the introduction of economic sanctions, Russian banks lack state budget funds, and they cannot cooperate with European financial institutions. International business has become impossible, cooperation with Western financial institutions has either been terminated or suspended.

To correct the situation, it is necessary to open the Asian financial market to the Russian banking sector. We see that active work is underway in market policy.

If a default occurs in Russia, this will significantly reduce gold and foreign exchange reserves. Accordingly, entrepreneurs in our country will be subject to strict lending conditions. Therefore, the more reserves the Central Bank has, the more loans it can issue, and the softer the conditions for their provision will be.

What happens after default?

If a default occurs in a country, then its image will suffer first of all. As a result, all world ratings begin to decline, which leads to a decrease in investment in the state’s economy. The exchange rate of the state is falling, and all indicators on the stock market are also falling. The rest of the countries stop cooperating and concluding agreements and contracts. There is an outflow of labor to other countries.

Debts that the state had can either be written off or restructured (interest rates are reduced or payment terms are extended). Sometimes some countries have a large portion of their debt forgiven.

The state lowers the level of salaries of public sector employees, delays payment of benefits, making every effort to save money in the budget to pay off internal and external debts. Of course, this negatively affects not only the standard of living, but also the mood of citizens.

As a rule, in case of complete default, devaluation occurs. This is a collapse in the value of a currency relative to other world currencies, leading to the depreciation of money. An example is the Russian default in 1998.

The positive side of default

Along with the negative consequences, default has unconditional advantages.

Firstly, writing off debts or postponing their repayment makes it possible to strengthen the country’s economy and make it more stable. Some countries, afraid of not getting their money at all, write off most of the country's debt or remove interest.

Secondly, after the default, its own production is established by increasing internal competition. Previously untapped resources or industries begin to develop.

There is an opportunity to rebuild the course of the economy and make it independent of imports.

Return to a stable exchange rate (after devaluation, for example).

And although default has an extremely negative impact on citizens and on the world position of the state, in the future it can have a beneficial effect on the development of the country.

1998 default

The last default in Russia in 1998 was caused by the collapse of the USSR. The economic crisis and financial difficulties led to huge borrowings and growing public debt. In 1998, Russia's national debt was 50% of GDP.

Along with this, prices for oil, gas and metals began to decline sharply. This further shook Russia's resource-based economy. And the wrongly chosen political course of the country’s leadership and the Central Bank became the decisive factor.

After the country went through a period of default, the level of GDP increased annually. Government debt was declining. Along with the development of Russia, its economic condition strengthened. After the change of government in 1999, our country’s world ratings began to rise.

Consequences of the 1998 default

Default in Russia was declared on August 17, 1998. The government defaulted on external debts, devalued the ruble and stopped payments on a number of obligations, such as payments on federal loan bonds, for example.

The consequence of the default was a fourfold drop in the ruble exchange rate. Until August 1998, 1 dollar was worth 6 rubles, after the default it became equal to 24 rubles.

According to experts, the banking system lost 100-150 billion rubles. The shortfall in consolidated budget revenues lost at least 50 billion rubles.

Of course, the standard of living of the population has suffered greatly. Revenues fell, according to official data, by more than 30%. The country was in decline.

GDP fell by more than 10%, and investment by 17%.

World practice

After the Russian default in 1998, Argentina experienced a state of decline in 2001. At that time, it was the world's largest default. The country was in an economic crisis, people were on strike, constantly taking to the streets. Argentina's debts grew, businesses declared bankruptcy, and the government changed its composition several times.

In the summer of 2015, experts recognized a default in Greece. The country simply had nothing to pay off its IMF loan. The authorities did not officially recognize the default, and after lengthy negotiations, Greece's debts were restructured.

In Russian history, in 1918, the new government refused to pay the debts of Tsarist Russia to creditors. The refusal of a new government to pay the bills of the previous one is also called a default. Already in the 21st century, the debts taken by the kings were recognized and partially paid.

Finally

The opinion of experts and analysts (not only Russian ones) agrees that by the end of 2016 the economic situation in the country will begin to stabilize. The government is even expected to announce GDP growth and lower inflation.

No matter how negatively sanctions and the global economic crisis affect Russia’s position, there is always a flip side to the coin. The import substitution program is working, strengthening the economy. Moving away from the raw material base in the economy will make it possible to become less dependent on fluctuations in raw material prices. Huge cash injections into Crimea are also expected to bear fruit.

The economic situation that has developed over the last decade is causing a new wave of social and financial problems for Russian citizens today. On the other hand, statistics clearly indicate the impossibility of a default in Russia in 2018.

News about the impossibility of default in 2018

1. Firstly, budget expenditures will be reduced from 16.24 to 16.04 trillion rubles;
2. Secondly, the national debt will decrease to almost 14.9%;
3. Thirdly, external debt to other countries will be only 3.6%;
4. Fourth, spending on public debt will stop at 0.9% of GDP;
5. Fifth, GDP is expected to grow to 1.5-2.7%;
6. Sixth, the price of a barrel of oil is expected to be $60-40, inflation will remain at 4%.

Types of default in 2018

Economists take into account several of its main types, tied to events, their characteristic features, and final claims:

1. The first is technical. When the borrower country is able to reimburse payments, but ignores the obligations under the agreement with the creditor country. There are no visible obstacles or pitfalls. Such a situation is hardly possible for the Russian state;
2. The second is sovereign. The state is forced to suspend the payment of an external loan because an economic crisis has suddenly arisen, due to which it is necessary to change economic policy. Because of this, the country’s authority is lost in the international market of creditor countries. According to experts, this is unlikely for Russia;
3. The third is corporate. When a country, in accordance with its debt obligations, actually does not even pay interest on common bonds. In other words, it is essentially in a state of bankruptcy, having the opportunity to protect itself from creditors only in court. Which is also unlikely to happen;
4. The fourth is cross default. When the debtor suddenly cannot fulfill some points of the debt obligations of the contract, which has a chain reaction on other concluded credit programs. As an option - also unlikely.

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For what reasons is default impossible in 2018?

Such an unsightly incident as default can occur both for an individual borrower of funds from a large enterprise and for the entire country. There are many reasons for this. At the same time, two similar concepts should not be confused: the borrower’s inability to repay the debt due to the circumstances that have arisen, i.e., a state of default with a state of bankruptcy.

Individual Russian enterprises, some of the large holdings today have or will have large loans from other states. Whether they will be able to cover their immediate future debts, the 2018 debts, is a question.

Video forecast: waiting for the ruble correction

But this will not in any way affect the servicing of Russia’s external debts to other states, even if the ruble weakens. Because the loans themselves are very small.

In general, it is difficult to imagine that Russia, as a debtor, will not fulfill its 2018 debt obligations to other creditor states. Failure to pay part of the debts, interest on them, failure of the loan agreement, failure to fulfill the terms of the concluded agreements - such a situation is impossible for our country.

Because this is eloquently evidenced by the economic development figures for the next twelve-month period. Convince yourself by comparing the experts’ arguments given above.

For several years in a row, the Russian Federation has been experiencing progressive ruble inflation. Personal incomes have dropped noticeably, as has purchasing power. Ultimately, all this did not cause the most rosy mood among citizens, who are now confident that Russia will default in 2019.

The latest news regarding whether to expect a collapse of the economy provides rather contradictory data. Some sources confidently state that the country faces a situation comparable to the 90s, others are optimistic and predict the beginning of economic and political recovery in Russia from the end of 2019.

The concept of default and general provisions

Let’s look at the concept of “default”, because despite the panic being spread, few people really understand what is meant by this word. This term is directly related to economics and is associated with an external loan agreement. In essence, this is the borrower’s failure to fulfill his direct contractual obligations. For the state, declaring a default means the following:

1. Complete loss of the country's prestige.
2. Official recognition of the state apparatus as ineffective and insolvent.
3. Bankruptcy and inability to repay debts.
4. Depreciation of government banknotes.
5. Falling purchasing power of the population.
6. Significant increase in unemployment in the state.

These are the causes and consequences of such an economic phenomenon. This is a really strong blow, from which the state that suffered it takes a long time to recover. To use this term to refer to Russia is to make a very serious statement. Is it fair to say that a default is brewing in the country?

Population panic

The middle class and low-income segments of the population fear the hypothetical economic downturn in Russia the most. Their fear is understandable, since it is these categories that will feel this blow more than others. The survey revealed the reasons that caused fears and expectations of default. They are:

• conflict with the state’s global partners, which caused a drop in GDP;
• sanctions imposed by advanced powers against the Russian Federation;
• disagreements in the domestic foreign exchange market;
• methodical multi-year increase in inflation of the state currency.

All this caused a significant drop in household incomes. And the population’s fears are quite understandable. But will it default in Russia next 2019? Let's look at the main versions.

Will there be a default in Russia in 2019, and in what month: expert opinion

Now on the global network there are many materials devoted to the default in Russia. Some of them were compiled by amateurs, others by professional economists. There are many scenarios for the development of events in the state. However, there are currently only two official versions. They were outlined by independent and government analysts. You should familiarize yourself with both.

Experts are divided on the future economic situation. Thus, official political representatives assure that there is no reason for panic. According to them, it is not worth expecting that the state will default in 2019. Since this concept provides, first of all, for non-payment or delay in external debt, Russia has nothing to worry about. As government experts say, the country's external loan is quite small. Moreover, the state has decent gold and foreign exchange economic reserves. This indicates that the agreement on Russia’s external debt is being implemented in full, and no interruptions in its payments are expected in 2019. The period will not be easy, but there is no need to talk about a catastrophe. According to some experts, economic growth is expected to begin in the coming year by the end of autumn.

Independent experts do not share this optimism. The only thing they support government representatives on is that a default really shouldn’t be expected in 2019. The Russian economy is not so shaken as to reach such a state. But at the same time, next year promises to be very difficult for ordinary citizens. Inflation will only progress, and household incomes will fall once again. We can only hope for indexation of pensions and cash payments. Sanctions, according to experts, will not allow Russia to debug its economic apparatus and make it work in a positive manner.

These are the two main points of view of various experts. To the question that concerned citizens, they gave a similar answer: a default will not occur in Russia in the coming 2019. But it’s difficult to predict what the year itself will be like.

In addition to the versions outlined above, analysts have prepared a number of pieces of advice for the country’s population. Their main thesis is that there is no point in panicking. Russians are recommended:

1. At the moment, the forecast regarding default is positive, and therefore the problem is far-fetched. Citizens do not need to worry and provoke unnecessary panic. Even if the 2019 default actually happens, citizens are in no way able to influence this situation. Although the opinion that such a scenario could happen in the coming years is more like a provocation and false incitement of panic.
2. Each individual should consult with appropriate specialists about what form would be most advantageous for taking out their own capital in order to protect it from a crisis. Since the situation in each case is individual, there can be no general recommendations. Some people prefer to invest their money in rubles, while others want to focus on developing business in domestic territories.
3. One of the most effective ways to invest is to invest in yourself. For example, paying for additional education will increase a person’s value in the employment market and provide a well-paid, stable job and a decent income, which will allow them to withstand economic shocks.