Russia: Government approves 2012-14 borrowing plan

Yesterday, the Russian government approved the key budget parameters and its borrowing plan for the next three years. The average Urals oil price in 2012-2014 is expected at USD93 per bbl, USD95 and USD97, respectively, with the budget deficit reaching 2.7% of GDP in 2012 and 2013, and 2.3% in 2014. This corresponds to an average of RUB1.6trn per annum over the period, most of which will be financed via domestic borrowing (Figure 1). Debt placement on the domestic market is planned to exceed RUB2.1trn per year, in addition to the full use of the Reserve Fund money by the end of 2013. Foreign borrowing is expected at over USD7bn per annum, with another USD10.6bn coming from privatisation. We take these figures with the following in mind:

• Russian Finance Ministry (MinFin) always tries to produce conservative budget drafts. In particular, its oil price assumptions usually turn out to be well below actual annual averages.

• Looking at the above issue from the opposite side, the current budget draft extends aggressive public spending approach of the recent years. We believe this approach will have to be reassessed if oil price drops, the risks of which have been emphasized by the latest market turmoil. MinFin estimates that the deficit will widen to 5% of GDP at the oil price of USD60 per bbl, but we believe the figure may be even higher.

• Borrowing parameters represent ceilings, with actual numbers historically recorded at lower levels. Raising around RUB2trn a year on the domestic market will be a challenge, as domestic liquidity will likely decline in the medium term. The efforts to list OFZs at Euroclear would help but would unlikely allow MinFin to avoid higher borrowing costs in the near term.

Figure 1: Government pencils in aggressive borrowing plans

Source: MinFin, Barclays Capital

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