Russia will try to swap its outstanding Eurobonds for new debt in 2017 to postpone paying back foreign debt and will increase its domestic borrowing to fill any budget holes, a senior Finance Ministry official said. The ministry is scrambling to raise extra funds, while President Vladimir Putin is keen to avoid a higher budget deficit amid low prices for oil, the country's biggest export.
The Finance Ministry aims to cut the budget deficit to zero by 2020. More borrowing appears to be the preferred option to try to protect the state's reserves while achieving this goal. Konstantin Vyshkovsky, head of the state debt department at the Finance Ministry, told Reuters in an interview that Russia will become more active in managing the state debt. Next year's budget plan envisages exchanging existing Eurobonds for new, later-maturing ones, he said.
Asked about the Russia-18, Russia-28 and Russia-30 debt issues, Vyshkovsky said that all three were being considered but that a swap would require relatively calm market conditions. "We are considering all three issues. It would be improper to speak more specifically as these are traded instruments," Vyshkovsky said. "When there are some external factors, especially of a political nature, it complicates such transactions."
The 2017 external borrowing plan envisages raising $7 billion via Eurobonds. Eurobond swaps would account for $4 billion. The other $3 billion will need to be borrowed. Vyshkovsky said the idea of swapping Eurobonds was "tentative" as holders were mostly foreign investors who might face difficulties carrying out transactions via Western settlement systems.
The ministry will consider issuing Eurobonds denominated not only in dollars but in euros too, he said. Sanctions imposed on Russia over its role in the conflict in Ukraine have limited Moscow's access to global capital markets. While looking abroad for cheaper loans, Russia is also borrowing at home by selling treasury notes known as OFZs. "The national market should be the main source for borrowing," Vyshkovsky said.
"As this year's events showed, our ability to raise funds on external markets can be negatively affected. That is why we can't allow ourselves to remain dependent on these markets." In 2016, Russia struggled to place a Eurobond but in the end managed to fulfil a $3 billion external borrowing plan. The finance ministry also had to expand this year's borrowing programme to cover a growing shortfall in the budget because it had nearly reached its full-year borrowing limit of 300 billion roubles in the domestic market at the end of the third quarter.
Russia will bring its debt to gross domestic product ratio closer to 20 percent in the next few years, up from less than 15 percent in 2016, Vyshkovsky said. Moscow's Reserve Fund, the rainy day fund designed to cover shortfalls in the state budget, will run dry in 2017, according to the budget plan. Russia has been hit by low prices for oil and gas exports, which account for around half of its budget proceeds and a third of GDP.