Moscow increases state borrowings by 40% in 2020
Nonetheless, Russia’s government debt is still one of the lowest worldwide
Facing a budget deficit last year, the Kremlin resorted to increasing borrowings instead of tapping state reserves. The majority of bonds issued by Russia in 2020 was acquired by national financial institutions, as the government avoids to increase foreign debt to ensure economic stability.
Russia’s state debt rose by 40% last year, as the country sold trillions of rubles in bonds to prop up lost oil and gas revenues from the pandemic, reports The Moscow Times. According to the Accounts Chamber of Russia, state debt amounted to 19 trillion rubles ($257 billion) at the end of 2020, which was equivalent to 17,8% of the country’s GDP.
After several years of budget surplus, the Kremlin faced a deficit of 4,1 trillion rubles ($55 billion) in 2020 due to lower tax revenues and higher spending amid the pandemic. Russia lost a significant part of its income from energy exports, as the country agreed to cut back its oil production at the beginning of the coronavirus pandemic to help support crude prices. Both the average price of oil and the volume of export saw a decline last year, as global oil demand decreased for the first time in a decade. Overall, taxes on Russia’s oil and gas sector brought 5,2 trillion rubles ($71 billion) to the budget in 2020, while in 2019, the figure was higher by a third, reads the Accounts Chamber’s report.
Nonetheless, the government opted against tapping its $170-billion National Wealth Fund to support the economy. Instead of that, Moscow decided to plug the gap with higher borrowing. Most debt issued by Russia during the pandemic was acquired by its state-backed financial institutions. The Russian government considers bonds held domestically to be safer, as some of the Kremlin’s most ardent opponents abroad are pushing a proposal to ban foreigners from holding Russian government debt, says The Moscow Times. Although such a turn of events is considered unlikely, it may trigger panic in the financial markets if overseas holders start to sell their bonds en masse. By the end of 2020, the share of Russia’s government debt owned by foreigners fell to 22%.
Russia’s level of government debt is still one of the lowest in the world thanks to booming commodity prices in the 2000s and Moscow’s conservative economic policy since Western sanctions were imposed in 2014. According to Bloomberg, state borrowings of the world’s richest economics increased by record 60% last year. The Organisation for Economic Co-operation and Development expects the process to continue through 2021.