LONDON, (Reuters) – Russia will likely default on its foreign debts. The West has launched unprecedented sanctions that were unparalleled in scale and coordination. Russia’s economy is expected to contract by two percent this year.

According to the IIF, half the foreign reserves of Monday’s central bank increased interest rates and introduced capital controls. The rest are in countries that have placed asset freezes. This severely reduces the power policymakers have for supporting the Russian economy.

Central bank will prioritise domestic savers over foreign investors.

Elina Ribakova (IIF deputy chief economist), told journalists during a press conference that default is possible if we remain here and the crisis escalates. She stated that default was “extremely possible”, despite the fact that Russia’s debt is small at $60 billion, she believes it would still be possible.

Russia invaded Ukraine last week. This prompted the West to issue a string of sanctions. The sanctions include the confiscation of Russian bank assets, the removal from SWIFT of many Russian banks and the blacklisting entities and individuals. Russia calls its actions in Ukraine a “special operation.”

Ribakova, the IIF’s director, stated that the sanctions were the “most severe economic sanctions” ever imposed upon a country and could send Russia into turmoil. This would lead to a lower than expected double-digit recession and an increase in inflation.

The possibility of Russian domestic foreign reserves being converted into roubles is on the table. But, as it strives to protect domestic savers, the central banks would not be happy to do so initially.