Russia's external and internal government debt

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:46

Our state is not only a huge empire, but also a major player in the financial markets both domestically and globally. What is Russia's public debt?

If we consider the public debt as the total obligations of the state to organizations, legal entities and citizens, that is, individuals, within the country, then we are talking about domestic debt. Speaking of debt to international companies and foreign countries, we mean external debt.

In international practice, external debt is also defined as the total debt to non-residents, and domestic debt - to residents.

Why the state becomes a debtor

The lack of funds leads to the formation of internal and external public debt in Russia. People have a lack of money, within the country there is a deficit of the state budget. If the population andorganizations in the country and abroad have free funds, the country borrows money to cover its needs, debt is formed.

On the other hand, the presence of debt stimulates economic growth…

Debt Forms

• Credit agreements and agreements between Russia and foreign banks, financial institutions.
• Issued Russian securities.
• Contracts for the provision of state guarantees by Russia, surety agreements to secure obligations assumed by third parties.
• Obligations of third parties, re-registered into the state debt of the Russian Federation on the basis of legislation.
• Agreements on the extension and restructuring of the country's debt obligations of past years.

Russia's external public debt

There is a special program that determines the size and structure of Russia's external obligations. It indicates the amount of total foreign loans of Russia and government loans issued by our country.

The program, which reflects all loans and guarantees exceeding $10 million for the life of the loan, is approved with the country's draft budget for the coming fiscal year. Purposes, sources, terms of repayment, amount of borrowings are described.

The Government of the Russian Federation may borrow additional funds not specified in the program if it helps to reduce the cost of paying interest on existing debt, in other words, to service it.

What external debts to the West does Russia have today

1. Russia's most extensive public debt is to commercial credit institutions in Western countries with state guarantees, regulated by the Paris Club, consisting of major creditor countries.
2. Loans from Western commercial banks issued by them independently, without state guarantees. Regulated by the London Club.
3. Debts to commercial structures for the supply of goods and payment for products.
4. Debt to international monetary organizations.

Russian Domestic Public Debt

There are three types of domestic debt. Firstly, federal, secondly, the obligations of enterprises and corporations under the responsibility of the state, and thirdly, the debts of municipal authorities to citizens and utilities.

Solution to domestic debt

Full repayment of the domestic debt is impossible and unnecessary, as this would freeze the cash flow inside the country. Measures to reduce the level of debt are being taken as follows.

1. Active development of the domestic securities market, attempts to enter the international arena.
2. Formation of programs to attract foreign investment.
3. Federal budget rationalization.

Russia's domestic public debt is denominated in securities and begins its calculation in 1993,then it was estimated at 90 million rubles.

From the first of January of this year, according to the new federal budget, the ceiling of the state debt of Russia in 2018 has been set. Its size is 10.5 trillion rubles, while the level of budget revenues is planned in the amount of 15.26 trillion rubles.

As of January 1, 2018, the total domestic debt amounted to 7 trillion 247.1 billion rubles, of which 59.1% were government bonds with fixed income. According to official data for 2017, the level of domestic debt increased by almost 20%, in fact by 1 trillion 146.78 billion rubles - new government bonds were issued, due to the placement of which in 2017 the Russian budget received more than 1 trillion. 750 billion rubles.

How long can I borrow

At each level, the law regulates the maximum amount of borrowed funds to cover the budget deficit.

In particular, for a constituent entity of the Russian Federation, this volume should not exceed thirty percent of its budget revenues this year. This does not include financial assistance from the federal budget and current year loans. For municipal facilities, this ceiling is 15%.

The cost of servicing (payment of interest) the public debt of a constituent entity of the Federation or a municipality should not exceed 15% of the total expenditure of their budgets.

Classification

Debts are divided according to the currency criterion:

• domestic - ruble debts;
• external - currency;

By goals:

• capital - the totality of all outstanding debt obligations with interest;
• current - debts due this year, income on issued securities, with interest.

By urgency (cannot exceed 30 years):

• short-term - up to 12 months;
• medium-term - not exceeding 5 years;
• long-term.

By management level:

• Russian government debt;
• subject of the Russian Federation;
• debt at the municipal level.

Subjects of the Russian Federation and municipalities are solely responsible for their debts, are not liable for each other's debts (unless they were entrusted under an additional agreement). The Russian Federation is not responsible for their debts, nor are they responsible for the country's debt.

USSR debt restructuring

Our country's debt to the Paris Club of creditors at the end of 1991 was $37.6 billion. At the beginning of 1992, Russia's external liabilities amounted to 57 billion US dollars, at the beginning of 1993 - about 97 billion. By the end of 1993, the total external domestic debt had risen to $110 billion, and the number of new loans issued to Russia from international financial organizations increased. So swiftthe growth of debt led to the state budget deficit, the deterioration of the price conditions of foreign trade, the reduction in exports.

In 1994, Russia assumed the debt of the USSR in full in exchange for foreign assets. Accordingly, all former Soviet debtor countries were released from paying debts, Russia became "responsible" for everyone.

In 1996, Russia and the Paris Club of Creditors signed a Memorandum concerning the restructuring of all foreign debt of the USSR. Now Russia's obligations to the Club amounted to 38 billion US dollars.

Russia's external public debt by years:

Year	Debt, billion USD
1991	67, 8
1997	123, 5
2000	158, 7
2001	143, 7
2002	133, 5
2003	125, 7
2004	121, 7
2005	114, 1
2006	76, 5
2007	52, 0
2008	44, 9
2009	40, 6
2010	37, 6
2011	36, 0
2012	34, 7
2013	54, 4
2014	61, 7
2015	41, 6
2016	30, 8
2017	51, 2

Debt management

• Change in loan yields.
• Consolidation - combining several loans.
• Deferment on repayment of obligations.
• Restructuring, structural changes in debt (short and expensive debts to long and cheap).

How Russia's external public debt can be used:

• the most effective method is to finance state economy projects, investments;
• financing the budget deficit, servicing its current expenses is a less preferred option;
• mixed version of the first and second.

Example of effective external debt management

Agreement to repay the Mongolian debt to Russia in the amount of $11.5 billion. In 2002, Russia offered Mongolia to write off 70% of the debt, and pay off the remaining 30% with commodity deliveries and the provision of blocks of shares in Mongolian enterprises. Already 49% of the shares of the mining company "ERDE NET" belong to Russia, soon a controlling stake in this company will belong to our country, and along with half of the world nickel market.

Trying to reduce debt

In our country, to repay external debt, new loans are used, while this is the most acceptable way. It is necessary to manage external debt at the stage of attracting these loans, evaluating the possibilities of repayment, redistribution, reduction, and optimization of the current debt.

Bwithin the framework of public debt management, the following tasks are solved:

• optimization of the structure, attracting longer "long" loans, expanding the issue of securities;
• use of projects backed by tied loans;
• exchange for national currency or property, debt redemption;
• inventory of our country's property abroad;
• desire to return Russian gold reserves from abroad.

The problem of Russia's public debt is permanent, the main thing here is to prevent too much debt growth. If this happens, the country's national security could be at risk, as the rise in debt leads to the bankruptcy of the state.

Full refusal of their debts is unacceptable for the state. Any debtor is obliged to recognize his debts and ensure their service and repayment on time. Then the debtor's authority will not be violated.