Russian isolation chills debt market for ex-Soviet neighbors
(Bloomberg) — Russia’s invasion of Ukraine risks triggering a wave of financial hardship and market loss from the Black Sea to the edge of the Himalayas.
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Sweeping sanctions have put the world’s biggest energy exporter on track for a deep two-year recession that will jeopardize trade relations, tourism and billions of dollars in remittances for its former Soviet neighbors.
As a potential ceasefire deal in Ukraine sparked a wave of relief this week, warning signs continue to flash in Tajikistan’s $17 billion Eurobond pool, Georgia , Belarus, Armenia, Uzbekistan and Kazakhstan. The debt of Belarus, Russia and Ukraine has suffered emerging market investors the biggest loss since the invasion of Moscow on February 24 – and the others are following close behind.
“Extensive economic ties” could “affect the ability of former Soviet republics to service their external debt,” said Claudia Calich, head of emerging market debt at M&G Investments in London. They are “risky because they are still very dependent on the conflict”.
Bonds issued by the countries directly involved in the crisis – Russia, Ukraine and Belarus – are already at pre-default levels. Elsewhere, the routes of contagion vary.
Tajikistan is most at risk from a decline in remittances, as its migrant workers in Russia contribute about 25% of gross domestic product, Calich said. About 13 billion dollars are sent back from Russia each year by workers from the Central Asian republic. The country’s 2027 debt yield has risen nearly 400 basis points since Feb. 23.
A “sharp and prolonged” economic slowdown in Russia “could lead to a lasting deterioration in Tajikistan’s growth potential, primarily through an expected decline in remittances,” Moody’s Investors Service said in a report Wednesday, in which it put the country’s credit rating under review for downgrade.
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In Georgia, tourism is essential. The travel industry accounts for around a third of the economy, with Russian holidaymakers accounting for 15% of the total. Yields on the April 2026 Notes climbed about 300 basis points over the period.
Belarus supported Moscow throughout the invasion and faces its own international sanctions. But Russia also accounts for about half of its imports and exports and a sharp slowdown there would hit it hard, according to M&G.
The country’s Eurobonds have suffered the biggest loss for emerging market investors since the invasion, according to Bloomberg indices. S&P Global Ratings warned on March 18 that the country’s credit rating could be further reduced.
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Energy-rich Kazakhstan’s main vulnerability lies in its financial ties to Russia, according to a March 25 JPMorgan report.
The Institute of International Finance has named Tajikistan, Mongolia, Kazakhstan and Uzbekistan as the frontier markets most at risk of trade disruption due to the conflict. Total exports and imports with Russia and Ukraine account for more than 10 percent of those countries’ gross domestic product, it said in a report.
JPMorgan analysts point to Belarus, Kyrgyzstan and Armenia as the most exposed due to their exposure to Russia in terms of trade, remittances, direct investment and their banking industries. Money transfers from workers to their homes could plunge by up to 40% this year, the analysts wrote.
“The region’s level of connectivity to the Russian economy and channels of contagion vary, but the economic fallout will be significant,” Fitch Ratings said in a report dated March 9. Currencies of former republics have fallen along with the ruble, which could hamper their ability to pay foreign debts, Fitch said.
(Updates figure to 8th paragraph; updates both graphs)
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