Russia’s external debt has been reduced to a record high

By July 1, 2023, Russia’s external debt decreased by 8.7% to $347.7 billion. This is the minimum figure since 2006, the decrease in January-June 2023 amounted to $33 billion.

Earlier, following the results of 2022, external debt decreased to a minimum over the past 15 years. What are the pros and cons of reducing the public debt and how Asian structures will affect the situation – in the material of Izvestia.

What does debt reduction mean?

The Bank of Russia explained that, to a large extent, such dynamics was influenced by the reduction of liabilities on debt instruments, including within the framework of direct investment relations, and the issuance of replacement bonds. “An important role was played by the reduction in government debt due to the sale of sovereign securities by non-residents,” the Central Bank of the Russian Federation added.

As Artem Shakhurin, an expert at IVA Partners investment company, explained to Izvestia, the restrictions imposed on the circulation of Russian bonds and the accrual of coupon payments on them force many foreigners to resort to the procedure for repurchasing these securities.

– The scheme, according to which payments are made in rubles to Russian accounts, did not suit many. For example, restrictions apply not only to government bonds, but also to securities of a number of private companies,” the expert explained.

In addition, according to him, under the influence of sanctions, many non-residents are withdrawing from their investment projects in Russia. Artem Shakhurin is sure that the reduction in the debt burden in itself is undoubtedly a positive factor. Although even before that, the volume of external debt in general and the volume of state obligations in foreign currency in particular was not critical for the economy and the budget.

According to Finam analyst Alexander Potavin, the reduction in external debt means that Western governments have banned their banks from lending money to Russian companies.

“Against this background, over the past year we have seen a gradual closure of those loans that domestic enterprises used to take from Western banks. Therefore, the external debt of the Russian Federation is now being reduced, the expert clarified in an interview with Izvestia.

The analyst points out that in the context of a confrontation with the West, a decrease in external debt significantly reduces the possibility of introducing new sanctions and reduces currency risks. At the same time, he fears that the separation from the Western financial system deprives domestic companies of an important source of financing for their production and operations.