The Ministry of Finance to increase domestic debt to the highest level since the late 1990s

The Ministry of Finance is ready to increase the maximum internal debt in 1997, of vouching for the businesses more than 1 trillion rubles to the end of the year. If the government will issue guarantees to companies in full, as a plan, the debt to GDP ratio could rise by almost 2 percentage points — the most since 1997. The upper limit of internal debt on January 1, 2017 it is proposed to increase from 1 trillion rubles to 9.87 trillion (almost 12% of GDP).

That the authorities want to increase the program of state guarantees this year to 850 billion rubles from 592 billion to 1.44 trillion rubles., became aware of the draft amendments to the budget published by the Finance Ministry this week. If the program is executed, it will be a record amount issued during the year guarantees for the obligations of enterprises. Internal debt of the government in this case, will exceed 10% of GDP for the first time since the late 1990-ies, the calculations made on the basis of the data of the Ministry of Finance. Guarantees are declared to the authorities as an important mechanism to support economic growth, but they are included in the public debt and in the future may result in the expenditure budget.

The warranty for the New year

The government this year has not issued any guarantees, but the Ministry of Finance has decided to increase the plan for their results by 143%. Generally, most guarantees are issued in the last months of the year a — December 31 (last year 48 guarantees were issued in the New year’s eve), follows from the data of the accounting chamber.

A program increase of 850 billion rubles. entirely falls on the category of guarantees for Bank loans and bonds of companies, preparing investment projects (including in the field of energy saving and increase of energy efficiency): increase from 175,3 billion to 1.03 trillion rubles.

Talking about the business, ready to invest in the construction and reconstruction of social, agricultural, municipal and transportation projects continue to operate them, explained earlier, the Ministry of economic development. The state is prepared to vouch for the business in the amount of up to 100% loan, but not more than 50% of the cost of the investment project.

For banks, the state guarantee a first — class guarantee, which should significantly facilitate acquisition of loans for business and to the explanation of economic development. These loans in rubles under the state guarantees can provide Russian banks or the Bank.

The company’s intention to invest in social, agricultural, energy and transport projects, the only borrowers who are willing to help the Ministry of Finance. Of the other nine categories warranty support, including military-industrial complex and defense procurement, the Ministry of Finance has not laid increasing guarantees.

Will be over 10% of GDP

At the end of 2015, the internal debt of Russia amounted to just over 7.3 trillion rubles, or 9% of GDP. The state guarantees accounted for almost 24% of domestic debt, from the data of the Ministry of Finance. The amendments, which still must be approved by the government and the Duma, the Finance Ministry proposed to increase the limit for net borrowing to 500 billion rubles (to the previously planned 300 billion roubles).

The increase in net borrowing and government guarantees means that internal debt can reach of 9.02 trillion rubles, or 10.9% projected by the Ministry of Finance, GDP in 2016, has calculated (see graph). The figure obtained on the assumption of 100 percent implementation of the updated plan for the state guarantee, minus the repayment this year of a previously issued guarantees and expected performance guarantees on warranty.

According to the chamber, this year on September 1 the state guarantees are provided, and repayment 56 guarantees amounted to 216,2 billion rubles, the Ministry of Finance withdraws the guarantee from the state internal debt, if expired its term or the recipient of the guarantee fully fulfilled its obligations on the loan or the government has paid the money for the warranty case.

How many guarantees will be repaid for all of 2016, does not say in the budget act, neither the amendments nor in the public documents of the Ministry of Finance. The press service of the Ministry has not responded to a request for state guarantees. So did you figure on September 1, but before the end of the year it may increase then the amount of debt will be less. In addition, the Ministry of Finance expects that the state will have to pay around 11 billion rubles for warranty cases (respectively, these guarantees also will be charged with the debt).

It should also be noted that the plan for issuing government guarantees should never be performed on 100%. So, in 2015, has been guaranteed to 208 billion RUB (only 37% of the plan), in 2014 — 533 bn (77%). The average for the last five years, the execution of the program of state guarantees amounted to 60%, follows from data of the accounting chamber. In addition, the state guarantees — a debt which with a small probability becomes a real expense. Last year of warranty cases did not exist, and this year the Ministry of Finance reserves under payment of only 10.8 billion rubles Guarantees that the government will issue this year, can be exercised no earlier than 2018, according to the law on the budget.

“Ghosts of the nineties”

Although Russia is very low by world standards, the level of debt to GDP, “the ghosts of the nineties” continue to haunt the Ministry of Finance, judging by the statements of officials. Finance Minister Anton Siluanov has repeatedly said that government borrowings in the current budget involve a risk of unwinding the debt spiral.

In June, he said in an interview that the larger borrowing of the government, banks, buyers OFZ could force the Finance Ministry to place the shorter paper, the risk is to slide into the GKO pyramid — symbol of the default of 1998.

Then, the internal debt to GDP was relatively small 20%, but the government was insolvent. Now the debt in Russia is expensive (the cost of borrowing greater than 8%), and the situation could spiral out of control and with small volumes of debt — “quite a few years to increase lending to $ 1 trillion, 1.5 trillion, 2 trillion, and investor confidence can change,” says the official financial-economic bloc of the government.

Debt, which allows the Ministry of Finance by the end of 2016, is a relatively small, says the analyst of Raiffeisenbank Denis Poryvai. But worried by the fact that in relation to GDP it will increase, while the economy is not growing — this is the difference of Russia from other countries, such as India, where public debt is growing in nominal terms, but is growing and GDP. Russia will have to increase debt service costs — so the “snowball”, he adds.

However, the risk of sliding into “the GKO pyramid” not now, says Poryvai. But in the long-term dynamics of the capacity even at 1.5% of GDP per year could lead to such a situation. Universal “dangerous” values on the public debt no, but bad if interest in his service is above nominal GDP growth. For Russia a “dangerous” level of debt — over 50% of GDP, says Poryvai (now taking into account the external debt of Russia is around 14%). This is not the critical level, but it investors will experience discomfort, says the analyst.