Russia No Longer Has Any Net State Debt

The Russian state debt appeared in the negative zone for the first time since 2014, according to the data of the Ministry of Finance.

Since the moment of the first sanctions over Crimea and the beginning of the drop in oil prices, the national debt of the country became less than the liquid assets of the “general government” (federal authorities, regions, and off-budget state funds).

Thus, if Russia would be forced to immediately repay all its debts, it could be done at the expense of deposits of state authorities with the Central Bank and commercial banks alone. Thus, as of August 1st 2019, the net assets of the general government (deposits minus debt obligations) totalled 1.25% of the expected GDP of 2019. On January 1st 2019 the national debt in a general sense exceeded state assets by 1.5% of GDP.

As the chief analyst of “BCS Premier” Anton Pokatovich said, “the absence in Russia of a net debt reflects its uniqueness among the markets of developing countries”. According to him, sanctions and the low prices of oil forced the government to save reserves for rainy day and to observe rigid debt discipline.

The Minister of Economic Development Maksim Oreshkin added that in the macroeconomics of Russia from 2014 to 2019 there was something that has to be included in textbooks. But the price is a lack of fiscal stimulus for the development of the economy.

Let’s note that the net debt of the general government of the Russian Federation, according to the estimates of the “Fitch Ratings” agency, fell to 14.6% of GDP, and the state assets grew to 13.4% of GDP, including 3.9% of GDP in the National Wealth Fund (NWF) and 2.9% of GDP of budget remains in the accounts of the Federal Treasury.

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As a reminder, state deposits are generally the liquid part of the NWF that is stored on the accounts of the Central Bank in dollars, euros, and British pounds – 6.5 trillion rubles for September 1st, and also the currency that was purchased by the Ministry of Finance in January-August in accordance with the budgetary rule – 2.1 trillion rubles.

In fact, liquid assets include the remains of means on the accounts of off-budget funds, for example the Pension Fund, which as of January 1st 2019 (the latest data of the Treasury) held 0.6 trillion rubles in accounts and deposits with the Treasury and banks.

The Telegram channel “Banksta” wrote even in the summer that “taking into account the budget surplus of 1.6 trillion rubles, there is the impression that the Ministry of Finance artificially creates a special reserve for a ‘rainy day’. This can be a consequence of the expectation of a sharp drop in oil prices or a new sanctions blow, including a ban on the purchasing of Russian debt by the US. However, even the increased national debt totals only 16% of GDP, which is one of the lowest indicators. Moreover, the total external debt of the country totals $487 billion and is fully covered by $518.3 billion in gold and foreign exchange reserves. No other country in the world, among the developing economies, has such solvency.

Something else is upsetting – with a sharp increase in the national debt, the ruble exchange rate risks to lose stability. The matter is that foreign investors become the main driving force that is capable of immediately changing the value of the Russian currency. Thus, in the event that the environment of the debt market and the world economic situation in general changes, foreign capital immediately leaves Russia. Such a thing happened in 2014, when the sale of the national debt for 600 billion rubles caused the fall of the ruble from 56 to 70 rubles per dollar.”


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