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Russia to bridge budget deficit with bond issue
Published: 12 March, 2010, 14:39
Edited: 16 March, 2010, 23:18
TAGS: Investment, Markets, Economy, Finance
Russia's budget deficit in January and February reached $6.6 billion, according to the Finance Ministry. The government hopes to limit the annual deficit to about 7% in 2010 and fill the gap between income and spending.
Russia will borrow from the international bond market this year for the first time since 1998 to cover the estimated budget deficit of about 7%.
It should have no problem attracting lenders. Russia has the third largest foreign exchange reserves and little government debt. In the short term the monetary effect will be virtually the same as drawing on the fiscal reserves, says Aleksey Moiseev, Chief Economist at Renaissance Capital.
“Russian sovereign Eurobonds, which are plenty for issuance this year, will help cover the budget deficit. This will have the same impact on money supply as would be drawing down on sovereign wealth funds. So in the short term I don’t really see any difference between issuing Eurobonds or drawing down reserve funds, Ministry of Finance Reserve funds, to fund the fiscal deficit.”
The limit for Eurobond issuance for 2010 is set at a little less than $18 billion, but Russia might go only for $5 billion in bonds according to Finance Minister Alexey Kudrin, thanks to the higher price of crude oil.
But Russia doesn’t have to borrow abroad. It could also issue government bonds at home, which would help develop Russia’s financial markets, says Ksenia Yudaeva, Head of Macroeconomic Research at Sberbank.
“Instead of increasing foreign borrowing we need to think more about developing domestic government debt market. It is a big problem for the financial sector. Right now there is a chance to restart this market. There is a huge demand for all kinds of fixed income instruments globally.”
Russia's sovereign bond market accounts for $44 billion. Opening it up to foreign investors might well increase the amount the Russian government can borrow.
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I am only a normal person, the thoughts about Russia now being a democracy in going forward from this moment have to be positive and exciting with its vast resources. Much like the United States things that have happened even one second ago we cannot change, we can only learn from them. I collect early United States Currency and Coins. Even the mundane issuing/selling of Bonds can be made exciting! As an example has anyone seen the early currency issuances (Pape Currency, Paper Bond Certificates, coins, etc.) of the United States, for the artwork was extremely beautiful. If a person takes the time to look up how much these early items have appreciated, it would astound them! The issuing of Russian Debt could be done in a similar manner for I am sure with the many hundreds of years of culture in Russia, they can produce truly beautiful artwork. Now that there is a democracy in Russia your Bonds can be tied to any of your bountful tangibles that as reported you felt previoulsy being so focused on, may have been slowing the growth factor. With this it seems your Bonds would be of the highest rating. If I were allowed by my Country and Russia I would like to buy something of renowned beauty producing a profit. When the Bond is paid if requested (1,2,3,4,5 10, 20 years,or it could be tied to a growing index with people not wanting to turn them in) it is marked accordingly (or a tear off bottom portion leaving the beautiful artwork for framing; having an Identificdation number, each is unique) and returned to the person. The simple point I try to bring forward is that in a democracy now, truly amazing things can happen even in the normal non-exciting events. Profits are suddenly derived where not considered possible in the past! We are all on this earth for a limited time, one must think/act positively, if not what is the outcome?
Russia defaulted on souvereign debt in 1991, 1996, 1998, 1999 and 2000. Investors received at average 18% of the money everytime it happened. I bet a lot that only high risk oriented speculators will be interested in the Russian bonds so expect high high interest rates. btw. it is significantly cheaper to consume the available funds than pay interests on bonds so why Russia does it?
Count Cash, I like the way you put it: "continual financial attack as part of warfare from the wall street cronies". Wall Street Cronies is the biggest legal crooks in the world. They take RCP or CPP (Canadian Pention Plan) money, then when it is time to pay it back with interest they return less than 70% of borrowed funds. Explonation is very simple: "We are not a bank. For this money always risk involved. Market did not do well this time. It will do good in a long run, thererfore, you have to wait may be 20 years more." Nobody is responsible for our failure. As a result Wall Street Cronies earn big buck. Elderly people are suffering. They have to save money on food, hydro, heat. Most of them sit in cold house and eat only two times a day, counting every penny left after investing they pention plan in Wall Street Cronies. This is modern Canada and it lasts almost 40 years. Pathetic.