The Ministry of Finance told about the risks of a new debt policy

In the next three years the Russian government will borrow on the domestic market at an average 1.6 trillion per year (gross of borrowing), which is 60% more than in 2016; net borrowing (including repayment of bonds) would amount to a trillion per year, should be published by the Finance Ministry on Monday, “the Main directions of the state debt policy for the 2017-2019 years.” A new reality for Russia is typical for sovereign borrowers situation is Finance the budget deficit mainly by loans and not accumulated reserves, stated in the document, so that by the end of 2019, 91% of the budget deficit will be financed by hozaystvennih (last year — 20%).

Public debt in Russia will remain low by world standards, all indicators of debt sustainability are within safe zones, and refinancing risks are “acceptable,” emphasizes the Ministry of Finance. However, the Agency notes “the tendency to the accumulation of substantial budget risks that are associated with at least a possible deterioration in the Russian Federation as a sovereign borrower the financial terms of borrowing and rising debt burden”. Under the most negative scenarios we can talk about the impossibility of attraction of credit resources in the necessary amounts and on acceptable terms, warns the Ministry.

In 2016 the share of non-residents on the market of Federal loan bonds (OFZs) reached 26%, but in the current budget cycle, the foreigners are willing to increase their positions in OFZs at the same pace that the Russian investors. “As a result, the volume of investments of foreign market participants, though will grow in absolute terms, but the share of non-residents will gradually “erode”, falling below current values,” predicts the Agency. And this is a good thing, according to the Ministry of Finance, as the increased mobility of capital and “specific preferences on the types of debt instruments” (for example, the demand for OFZ bonds, inflation-indexed) pose “risks to the stable functioning of the national market”.

Russia’s access to the Eurobond market in the years 2017-2019 will be like in 2016, to be determined not by the objective need, which is not, but the need to maintain a presence in the international market and support a representative yield curve of Russian debt in foreign currency are stated in the “Main directions of the debt policy.” The main “focus group” will serve non-residents, they will be offered paper in US dollars, but can be embed in euros. Given the “pressure” which, according to the Finance Ministry, have on systemically important foreign financial institutions, their regulators, the Finance Ministry proposes to provide at the legislative level global banks the right to open accounts of a foreign nominal holder at the Russian National settlement Depository. Now it is permitted only to foreign Central depositories, clearing and settlement systems.

Separately, the Finance Ministry raised the question of a possible placing on the Moscow exchange OFZ bonds denominated in Chinese yuan and is designed for investors with “mainland” China (this tool was discussed last year). From the document of the Ministry of Finance rather that in the near future to wait for the placement of OFZ yanevych not worth it. “In the conditions prevailing in the PRC mode of limited convertibility of the yuan, and the availability of other foreign exchange limitations, the work in this area cannot be accelerated and the more intensified,” — said in the “Main directions of the debt policy.” In addition, access to the Chinese market involves the relevant agreements with local regulators, but the parties have so far only created the “prerequisites for interoperability”.