Russia is required to make a series of payments on US dollar and euro-denominated debt starting Wednesday. But the main rating agencies predict a sovereign default.
Western sanctions following the invasion of Ukraine drove the ruble to record highs. The sanctions have effectively locked Moscow out of its own foreign currency reserves.
Russian President Vladimir Putin has said both the public and private sectors can use rubles to repay creditors.
But foreign investors are turning their backs on a currency that has rapidly lost about a third of its value.
The March 16 deadline for sovereign bond repayments has a 30-day grace period – but further interest payments are due at the end of the month.
Rating agencies say Russia is likely to cave in, defaulting as early as April.
Nishihama Toru, chief economist at the Dai-ichi Life Research Institute, says the damage could be devastating not only for the Russian government, but also for the people.
Japan’s investments on fragile ground
A Russian default in 1998 triggered a global financial crisis. But analysts say that is unlikely to happen this time.
This is because the country’s outstanding payments on international obligations stand at around $40 billion, which is relatively small.
Still, economists say the country’s economy is set to shrink by at least 10% this year alone, due to a drop in exports and investment.
This is of great concern to investors from other countries that have money at work in Russia, including Japan.
Japan has sought to deepen economic ties with Russia in recent years, even after annexing Crimea in 2014.
But Nishihama thinks it could soon backfire.
Japan finds itself among the countries imposing sanctions on Russia, whose economy “may take years to return to pre-invasion levels”, he says.
Much of Japan’s investment – both public and private – has flowed into Russia’s vast energy industry.
Banks and commercial companies are particularly exposed, with total extended loans estimated at 1 trillion yen.
The chances of seeing all that money again are decreasing day by day.