Russia’s public debt will remain below the level of debt of developing countries, despite the government’s plans to bring it to 20% of GDP – this is necessary to ensure macroeconomic stability, according to the experts interviewed by TASS.
Earlier, Finance Minister Anton Siluanov said that Russia’s national debt will approach 20% of GDP in 2021.
Even in this case, the level of debt will remain much smaller than the generally accepted safe debt burden, says Finam analyst Sergey Perekhod.
“As for developing countries, their average value is 53.8% of GDP: for India it is 68.6%, for Turkey – 35.6%, for Brazil – 91.9%, for South Africa – 65.3%, for Saudi Arabia – 24, 5%. Russian debt in relation to GDP is nominally small,” he said.
The Russian government’s maintenance of a low level of public debt is associated with ensuring macroeconomic stability, since the structure of the Russian economy is strongly tied to raw materials, explains Vasily Karpunin, head of the information and analytical content department at BCS Broker.
Nevertheless, Russia can easily increase its national debt to 30% of GDP without a threat to financial stability, chief economist of Sovcombank Kirill Sokolov says.
“It is important what the debt is attracted for. If this is an effective investment that will accelerate economic growth, then investors will welcome such an increase in debt,” the expert stresses.
However, the transition to a higher level of public debt in the long term is a normal process, according to analysts at VTB Capital.
“It is associated with the transition to inflation targeting and the consistent monetary policy pursued by the Central Bank of the Russian Federation, which led to a decrease in inflation volatility,” they explain.
How Russia can increase national debt
The Russian financial system may become the main buyer of the state debt, Sokolov from Sovcombank believes. In particular, these are Russian banks with an extensive liquidity reserve, as well as pension funds and insurance companies. A significant reduction in deposit rates can strengthen the interest of individual investors.
“We see an increase in demand from individuals for stock market instruments. Due to fairly low deposit rates, we can expect an increase in the presence of individuals in the public debt market,” notes Dmitry Postolenko, portfolio manager of Sberbank Asset Management.
Foreign investors, despite the deteriorating global sentiment towards emerging markets, the growing geopolitical uncertainty around Russia, remain interested in Russian federal loan bonds (OFZs), adds Sofya Donets, economist at Renaissance Capital for Russia and the CIS.
“Russia is coping with the consequences of the pandemic quite steadily against the general background, the budgetary and external positions remain strong. Now the high level of uncertainty can restrain external demand, but we can see its recovery at the end of 2020 if the sanctions risks are not implemented,” she says.
As a last resort, the government can directly borrow from the Central Bank.
“However, despite the fact that many other developing countries are following this path, this option will be used if all the others do not work,” says Vladimir Bragin, head of the department for analysis of financial markets and macroeconomics at Alfa Capital.
Russia can build up debt both in rubles, which is potentially facilitated by historically minimal ruble interest rates and impressive reserves of ruble liquidity in the banking sector, and in foreign currency – this is allowed by record volumes of international reserves, Yuri Kravchenko, head of the department for analysis of banks and money market Veles Capital concludes.