Russia’s external debt began to grow: economist Nikolaev assessed the risk to the economy

“It’s not just that foreign sources of credit resources have closed”

Over the past October-December, Russia’s total external debt increased for the first time since the second quarter of 2022, although not much. The growth was 1.3%, and the total debt amounted to $326.6 billion. How to treat these figures? According to experts, the current situation with external debt is extremely confusing, opaque and globally different from what it was a couple of years ago, when Western capital markets were open to the country.

According to the Central Bank, growth was recorded in all three main components: external public debt increased to $32.7 billion (+2.9%), company liabilities to non-residents (corporate debt) – to $199.4 billion (+1.4) , external debt of the banking sector – up to $94.4 billion (+0.7%). From these indicators it is clear that the main share of borrowings comes from private enterprises and financial organizations. And about a fifth belongs to holders of Russian bonds.

As for those creditor countries to which Russia as a state owes some money, in 2021, according to the World Bank, there were only three of them left. These are India (debt – $610 million), France ($316 million) and South Korea ($280 million). So the word “external” should not be confusing. Today Russia is not able to apply for preferential loans from international banks due to sanctions. As Deputy Head of the Ministry of Finance Irina Okladnikova said, “we can no longer borrow on foreign markets for obvious reasons.”

In principle, Russia is still one of the countries with a low debt burden: 20% of GDP is considered a safe level, while in the Russian Federation it is 17.2% (based on last year’s results). For comparison: in the USA the figure exceeds 120% ($32 trillion), in France – 110%, in Greece – 200%, in the eurozone – 90%. According to experts, the country is able to stably service its debt obligations even taking into account the sanctions freeze of half of international reserves. But the main thing is different: today the Russian Ministry of Finance is relying on borrowing on the domestic market. The structure of holders of federal loan bonds (OFZ) is dominated by domestic investors – more than 80%. These are mainly banks and pension funds.

“In general, the situation with external debt is extremely confusing and needs to be detailed,” notes Alexey Vedev, director of the Center for Structural Research at RANEPA. – Previous approaches and calculations are not entirely correct in the current conditions. On the one hand, Russia still has assets in the form of foreign exchange reserves – private and public, and on the other hand – debt. The absolute formal indicator of external debt of $326.6 billion does not mean anything. But what about the $350 billion in government funds frozen by the West? Are these funds somehow taken into account here? In addition, the capital of a number of large Russian corporations has been blocked. Where should we include them, in what statistics?”

Accordingly, according to Vedev, the external debt indicator needs to be structured and divided into components. In particular, we need to understand which countries we owe (how much and in what currency), who owes us (to what extent the external debt is covered by Russian borrowers). You need to know what amounts Russia owes separately to friendly states, separately to the European Union, and separately to the United States. And so on.

The head of the analytical department of AMarkets, Artem Deev, points to the following data from the Central Bank: in 2023, the external debt of the Russian Federation decreased by 14.9% (or by $57 billion in real terms), amounting to $326.6 billion (the increase was recorded in October-December). During the year, non-residents had fewer and fewer Russian sovereign securities at their disposal, as the state redeemed them as planned.

“Judging by formal signs, the situation is quite stable and should not cause concern,” says Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. – But there is an alarming circumstance: in 2024, according to official forecasts, the Russian economy will slow down quite significantly compared to 2023. And the prospects for servicing external debt are directly related to macro indicators. The budget will remain deficit in the next three years, until 2026 inclusive. Accordingly, the growth of external debt may accelerate. It is clear why the state, taking into account all today’s risks and restrictions, relied on domestic borrowing. It’s easier, clearer, and most importantly safer for him to act this way. In this sense, Russia is not alone: ​​this is a normal global practice when private companies borrow within the country and pay off their debts. So the point is not only that foreign sources of credit resources have been closed for the economy.”