General Information Concerning the External Debt

The debt of all economic entities of the RF (the Russian Federation), including the government and administrative bodies, the Central Bank of the Russian Federation, commercial banks and companies of the real sector of economy (hereinafter referred to as the "aggregate external debt"), which has achieved its maximum value at the level of $733 Billion by the second quarter of 2014, then it has began to demonstrate the pronounced downward tendency. The restrictions on borrowing on the part of the Western creditors were one of the most important factors of decrease in the debt obligations of the Russian entities. As of the end of 2015, the aggregate debt was equal to $516 Billion, that is, it has decreased by 30% (as compared with its maximum value, or by $217.1 Billion). What is more, $94.4 Billion of this amount were decreased at the expense of the valuation adjustment of the debt section, which was denominated in the Russian Roubles).

At the same time, against the background of the decrease of the Russian Gross Domestic Product (GDP), which was denominated in the US Dollars, the ratio of the aggregate of the external debt to the GDP has increased: it has achieved 39% in the fourth quarter of 2015.

The repayment of the external debt over the attraction of financial resources has made an essential contribution to the outflow of capital (see "Petroleum Rouble" Review). The share of the RF state institutions (the RF government and administrative bodies and the RF Central Bank) in the aggregate external debt of the Russia is not so large; it is equal to approximately 8% ($41.5 Billion). Obligations of the non-financial organizations create the biggest part of the external debt (as of the end of 2015, they were equal to 343 Billion, or 66% of the aggregate amount).

What Every Citizen Must Know on the RF External State Debt

The debt load of the RF government and administrative bodies has decreased essentially. As compared with the maximum value, which was achieved in the third quarter of 2013 ($62.7 Billion), the indebtedness has decreased down to $30.6 Billion in the fourth quarter of 2015, that is, by more than 47% or by $26.6 Billion, (at the same time, $6.7 Billion of this amount were connected with the valuation adjustment of the debt section, which was denominated in the Russian Roubles).

The external debt of the RF Central Bank is absolutely non-essential one against the aggregate background. What is more, the biggest part of this debt is connected with the special drawing rights (SDR), which are used within the International Monetary Fund (IMF) in order to adjust its Balance of Payments. As of the end of 2015, the RF Central Bank debt, which is denominated in Euro, US Dollars, and Russian Roubles is only equal to $1.5 Billion

The external debt of the RF government and administrative bodies, as well as the external debt of the RF Central Bank are equal to 3.3% of the GDP. As compared with the developed countries (such as the USA and Germany: 39.2% and 42% respectively), this amount is absolutely non-essential one.

Non-Governmental External Debt – Who Should Pay to Whom?

Beginning from the middle of 2009, foreign assets of the Russian banks have exceeded their liabilities, which are denominated in foreign currencies, in a sustained way. The biggest share of foreign assets of the Russian banks is connected with the Russian issuers' obligations, which are structured through the foreign securities (Eurobonds, global notes, etc.). Notwithstanding the jurisdiction of these obligations, this debt is not the external one. The net foreign assets (assets minus the liabilities, which are denominated in foreign currencies) of the Russian banking system are equal to $90.5 Billion (as of the end of 2015)

The share of the long-term borrowings increases permanently – from 72% during 2012 and 2013 up to a slightly more than 80% during 2015, and this share includes the subordinated loans of the affiliated persons.

As concerns the structure of the external debt of the Russian non-financial organizations, the biggest part of this debt (39% as of the end of the last year) is connected with the loans, which were provided by owners of companies – these loans may be considered as the equity investments, therefore they are not debts from the standpoint of the economics.

The external debt is small, but the debt servicing cost is high

The formal amount of the external debt is very much different as compared with the actual amount. It is possible to determine the following factors, which distort the actual business situation:

– the biggest share of the Russian banks is connected with the owners of the external Russian debts, which are structured through various foreign instruments,

– debt of companies before the owners is the joint stock capital in practice.

– the subordinated loans of the Russian banks with the participation of foreign capital may be considered as the joint stock capital,

– the indebtedness, which is denominated in the Russian Roubles and which forms the biggest share of the debt, is actually purchased by the Russian investors,

– the RF Central Bank's indebtedness before the IMF, which is (in fact ) the special drawing rights (SDR), which are artificially distributed and in respect of which the RF Central Bank has relevant assets.

In accordance with our expert calculations (taking into account the above-stated factors), the actual aggregate external debt does not exceed $200 Billion. The foreign exchange reserves of the RF are equal to $319.5 Billion, and, respectively, the Russian economy is the net external creditor, which has more external requirements as compared with its obligations. Therefore, the Russian economy is the creditor of the world economy, rather than the reverse.

The ratio of the nominal aggregate external debt of the Russia to its GDP is at the very acceptable level (39%). What is more, the actual external debt is only equal to 15% of the GDP, that is, it is near the levels of the People's Republic of China (PRC) and Brazil. On the other hand, the debt servicing cost continues to be at the very high level for the Russian issuers.

The annual external debt servicing cost of the RF is equal to 0.31% of the GDP, therefore (taking into account the current rate of return), the Russian Government and the RF Central Bank may increase its external debt by almost three times (by taking one more credit in the amount of $73 Billion) in order to be at the level of the USA (as concerns the debt servicing cost). However, if the interest yield of the Russian government bonds would recover to the level of the pre-crisis level of 2013 (approximately 7.4 annual percentage yield), then it would be possible to increase the external state debt up to $154 Billion (that is, by $110 Billion)

Another situation exists in respect of the external non-government debt – the Russia has spent approximately 4% of its GDP for the debt servicing cost in 2015 (it is the essentially higher amount as compared with the USA, Germany, PRC, and Brazil amounts). If one would assume the above-mentioned actual amount of the aggregate external debt ($200 Billion), then it follows that 1.6% of the GDP must be spent for the debt servicing.

Therefore, the RF Government has a room for manoeuvre – it may lend essential resources in foreign countries. However, the Russian economy has to decrease the debt servicing cost, regardless of the fact that Russia is a creditor of the world economy.