Russia More Than Doubles Domestic Debt Plans to Fund Gap

Posted by & filed under Debt.

Russia, which scrapped a $7 billion
Eurobond sale this year, plans to more than double its annual
domestic borrowing program in the next three years from the
current level to finance the budget deficit.

The government will borrow 1 trillion rubles ($29 billion)
to 1.1 trillion rubles a year on the local market, up from the
450 billion rubles now planned for 2014, Finance Minister Anton Siluanov told reporters in Moscow after a government meeting
today. The government largely backed the ministry’s proposals
for the 2015-2017 budget, he said.

Russia, which in May cut its domestic debt target by 358
billion rubles, is counting on increased investor appetite after
demand for ruble assets suffered amid a plunge in the ruble on
concern over Ukraine-related sanctions, as well as the central
bank’s unwillingness to lower interest rates because of
accelerating inflation.

“We see domestic borrowing as the main source of financing
the budget deficit next year,” Siluanov said. “The state’s
presence on the debt market will increase significantly.”

Under the Finance Ministry’s proposals, the federal budget
will have a cumulative 1.4 trillion-ruble deficit during the
next three years. The gap will be 0.4 percent of gross domestic
product in 2015 and 0.6 percent in the following two years.

Foreign Debt

The government hasn’t decided yet whether it wants to
increase external borrowing, which is still budgeted at $7
billion per year, according to the ministry.

The yield on Russia’s ruble-denominated bond due in
February 2027 rose to as much as 9.71 percent on March 14 from
7.9 percent at the beginning of the year after the central
bank’s surprise decision to raise its key rate by 1.5 percentage
points. The yield rose three basis points, or 0.03 percentage
point, to 8.57 percent by 6:43 pm in Moscow.

“The Finance Ministry’s reminder on high borrowing
expected in 2015 and 2016 shouldn’t significantly impact the
market,” Ekaterina Zinovyeva, an analyst at OAO Gazprombank,
said by e-mail. “We consider as a base-case scenario that the
Finance Ministry will continue to weigh the market situation
accurately and will not borrow at any price.”

To contact the reporters on this story:
Olga Tanas in Moscow at;
Vladimir Kuznetsov in Moscow at

To contact the editors responsible for this story:
Wojciech Moskwa at;
Balazs Penz at
Paul Abelsky, Scott Rose