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Paying Its Bills - Russia's External Debt Has Plummeted

The external debt of Russia has fallen by 30% since the summer of 2014

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This post first appeared on Russia Insider

The external debt of Russia has sunken rapidly and drastically. Since summer 2014 it was diminished by 30%, not least because of the sanctions against Russia and the devaluation of the Rouble. On one hand the experts see this as a positive trait — now the government has no problematically high debts abroad, on the other hand, such a situation indicates, that both Russians and foreigners have lost their trust in Russia's future.

The whole private and public external debt of Russia has sunken already by 18% to the end of the year from its $733 Billion peak in the end of June 2014. It has sunken by 30% to June 2015 with the highest level now being $516 Billion. According to first estimations of the Central Bank, until March 2016 the dept stayed on the same level.

Meanwhile, the external debt of the government (without the Central Bank or state-owned companies taken into accord) even decreased by almost a half (~46%) from June 2014 to March 2016. In the end of March 2016 the debt was worth scarcely $30,8 Billion with its share in the total external debt diminished by another 6%.

Banks and state-owned companies forced up the external debt

Thus the government itself, unlike many other countries, has no problematically high debts abroad, emphasizes Chris Miller, Russia-expert at the Yale University near New York. He has commented on the development of the Russian external debt since 2004, recently. Below you may find a summary of his main assessments.

The Russian bank's raising of credits had a share of one third in the rapid increase of external debts in the private sector from the number of $100 Billion up to $659 Billion within one year.

The second most important factor of external debt rising have been state-owned companies, especially in the energy sector, such as Gazprom and Rosneft.

Due to shortage of translation staff we’ve made a translation of the remaining part of the article via Google Translate. We apologize for the inconvenience.

What effect did the oil price slump, Rouble crash and sanctions have on the situation?

As long as oil prices were high, Western investors gladly gave loans to Russia. With the imposition of sanctions, the credit markets, however, were closed in the West. Ultimately, Rosneft could refinance itself only with the help of the Central Bank. They accepted new Rosneft-loans as collateral (a measure which was, for example, sharply criticized by Sergei Gurijew, rector of the Moscow New School of Economics in 2013 and future chief-economist of the London EBRD).

Russian banks have been particularly affected by the Rouble slump. They cannot service their debts, like the Russian energy exporters, in foreign currencies with foreign exchange revenue, but only with devalued Rouble revenues. This is also the reason why the external debt of the banks has declined by 38% since 2014, way faster than companies outside the financial sector have reduced their external debt (-20%). In addition to that, some of the largest Russian banks were sanctioned, and, thus, could not take loans in the West.

In the fall of 2014, the Central Bank took on measures, that have helped banks to refinance their Dollar credits. But they linked the provision of additional liquidity, so Miller, with a resolute fight against poorly managed banks in order to reduce the risk for the Russian taxpayer to bear the losses.

Reduced movement of capital shows loss of confidence in Russia's future

Millers Conclusion: the earlier rapid influx of foreign capital was evidence of investors awaiting significant growth in Russia. The decrease in external debt is a sign, that Russians and foreigners have little confidence in Russia's future.

However, Miller praises the role of the Central Bank in this process: it happens rather rarely for countries to deleverage their debts with so little “financial chaos”.

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Source: Ostexperte
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