Please remember, this is government debt only, Total external debt (more regularly quoted) is over 500 Billion
Russia has several layers of government and all of the debt accumulated at each level is counted as “public debt.” However, only the debts of Russia’s federal government qualify as the country’s “national debt.” The debts of state owned enterprises and government agencies are not included in the national debt figures unless those debts are financed through the federal government.
The central government operates a loan guarantee mechanism for some infrastructure projects. By this process, the government becomes responsible for the repayment of some of the debts raised by provincial governments, state-owned enterprises, and government agencies.
Although it is not envisaged that the government will end up paying these debts, the guarantees offered through the Russian Federation Development Fund do incur the risk that the primary borrower may fail to repay the debts, in which case, the national government would be obliged to pay them.
These guarantees do appear as part of the national debt, although they are itemized separately to make it clear which debts are actually payable by the federal governments and which only have a potential to become the responsibility of the government.
The table below explains what is included in the national debt figure and what isn’t:
|Russian Government Obligation||Government Department||Included in National Debt?|
|Government-issued bonds||Ministry of Finance||Yes|
|Short-term debt instruments||Ministry of Finance||Yes|
|Provincial and local government debt||Russian Federation Development Fund||Some|
|Debts of public agencies||Russian Federation Development Fund||Some|
|Debts of state-owned enterprises||Russian Federation Development Fund||Some|
|Civil Service pension obligations||All||No|
|State pension||Pension Fund of the Russian Federation||No|
|National bank guarantee scheme||Ministry of Finance||No|
|Accounts Payable (unpaid bills)||All||No|
The Ministry of Finance is responsible for all of the debt of the national government. All debt is issues in the name of the Russian Federation and so all branches of the national government are equally liable for those debts. The specific section of the Ministry that calculates the need for debt and schedules the sale of bonds and bills is the Federal Treasury.
Although the national debt is the responsibility of the government and is overseen by a government department, the actual issuance of debt instruments and the raising of debt through loans and other means is left in the hands of the Central Bank of the Russian Federation, which is also known as the Bank of Russia.
The Bank of Russia holds regular auctions of debt instruments, these auctions are scheduled on a calendar, which is distributed to authorized brokers, but is not available to the general public. The government offers two categories of investment devices to an approved list of dealers:
The GKO is a short-term debt instrument. As with most government debt structures around the world, short-term debt is raised by zero coupon discounted contracts. These instruments never have a maturity date of a year or more. At the point of a year, a debt instrument becomes defined as long term.
Short-term devices are used for cash flow. The Treasury has a good idea of how much money it is going to get in during the year through taxes and tariffs. However, that money doesn’t flow in at a regular pace. The GKOs bridge between the regular expenditure of the government and the irregular pace of its income. There are a few basic characteristics of GKOs:
The long-term debt instruments issued by the Russian government are called OFZs. These are the government’s bonds.
The government offers three types of bonds:
Benchmark bonds are straightforward investment devices and they can be traded. These bonds are denominated in Rubles. The amount of the loan, the annual interest payable, and the maturity date of the bond are all printed on the bond certificate. The bond will pay the same interest rate every year and the loan will be paid off in full on the maturity date.
Index-linked bonds increase in value with inflation, so the value of the capital increases every year. The interest rate payable on those bonds remains the same throughout the life of the bond, but as the capital amount increases, the amount of interest that the bearer earns will increase each year.
Euro bonds are issued in Foreign currency. Despite the name, most of these bonds are not issued in Euros. In fact, most are issued in US Dollars. Apart from the currency that these bonds are written in, Russian Euro bonds operate in exactly the same way as benchmark bonds.
Despite a falling currency, Rouble-denominated securities have continued to be attractive to overseas investors.
By August 2018, the public debt of Russia in the hands of investors within the country amounted to 9,043,769.9 million Roubles. Of that, 1,453,181.4 million Roubles represents guarantees issued by the government rather than actually money owed.
By the same date, the money owed by the Russian government to foreign investors stood at $49,827.3 million, of which, $10,357.2 million is in the form of guarantees to cover other borrowers.
The foreign reserves of Russia stood at $458,032 million at the beginning of August 2018.
Russia is classified by economists as an emerging economy. In fact, it is the “R” in “BRICS.” During 2018, emerging economies have run into trouble. Many of those problems have been triggered by political corruption scandals. However, the core of the problem among the majority of emerging economies lies in trade deficits, a large external debt and a shortage of foreign currency reserves.
The Russian economy does not fit the typical emerging economy profile. Whereas a typical emerging economy model is one of countries that exploit cheap labor costs to create a large low-cost manufacturing base, Russia’s trade profile is dominated by the production of commodities. The opportunities and threats for the Russian economy are more similar to those of Australia than those of India.
Russia has accumulated large foreign currency reserves and has a trade profile that keeps earning foreign currencies. The country has a very small public sector which has accumulated a much smaller external debt that the economies of Turkey, India, China, and Argentina.
According to the IMF, Russia’s national debt to GDP ratio stands at 17.437%, making Russia the ninth least indebted country in the world.
What facts should you know about Russia’s national debt?