To give, not to take: the external debt of the Russian Federation has decreased to a minimum in 18 years

Russia's external debt has dropped below $300 billion for the first time since 2006, according to the Central Bank (Izvestia has studied them). Foreign borrowings by the government and companies have reached a minimum in 18 years. The reason is that the country is paying off past obligations, but in the face of external restrictions, it does not take on new ones, experts explained. This increases the sovereignty of the Russian Federation, but cuts off our country from cheaper loans in conditions when the Central Bank's rate is high and it is expensive to issue OFZs. Whether we need to look for a replacement for Western creditors is in the Izvestia article.

The external debt of the Russian Federation — what it includes

By January 1, 2025, Russia's external borrowings had decreased to $290 billion, according to statistics from the Bank of Russia (Izvestia studied it). We are talking about all obligations (both of the state and companies) to foreign players: countries, legal entities, international organizations and institutions. In the last quarter of 2024, the figure dropped sharply - by almost 10% (by $19 billion).

This amount of external debt is the minimum for 18 years, according to statistics from the Central Bank. As of October 1, 2006, it was $269 billion. After that, according to the regulator, it reached its peak on July 1, 2014, amounting to $732 billion rubles. Then it was gradually reduced.

Photo: IZVESTIA/Pavel Volkov

In particular, the external debt now consists of borrowings from government agencies ($19 billion), the Central Bank and banks ($95.5 billion), as well as other sectors of the economy (mainly companies that turn to foreign creditors — $175.5 billion). Izvestia sent inquiries to the Bank of Russia and the Ministry of Finance.

The reduction of external debt is directly related to sanctions and restrictions on access to international financial markets, explained Vladimir Eremkin, a researcher at the IPEI Structural Research Laboratory at the Presidential Academy. Because of this, Russia has stopped taking foreign loans from unfriendly countries, which mainly invest in other countries and actually act as market makers in this market. At the same time, currency risks have increased for us, as it has become difficult to conduct debt payment operations directly.

At the same time, Russia is systematically paying off its obligations — this year alone, the Ministry of Finance plans to pay about $2.1 billion in foreign debt, which leads to its reduction, Vladimir Eremkin added. In addition, the active transition of the Russian Federation to settlements in rubles under foreign contracts played a role, which naturally reduced the need for external loans.

Photo: IZVESTIA/Eduard Kornienko

As a result, both government and corporate borrowers shifted their focus to domestic financing in Russian rubles, said Alla Chalova, Associate Professor of the Department of State and Municipal Finance at Plekhanov Russian University of Economics.

Why reduce external borrowing

The low level of external debt supports the country's financial stability and sovereignty, which makes the country less vulnerable to sanctions. Reducing the level of public debt, as Vladimir Eremkin noted, is often perceived as a positive signal about the implementation of responsible fiscal policy. In addition, since the external debt is denominated in a foreign currency, with a decrease in its volume, currency risks also decrease.

However, foreign debt in itself does not act as something unambiguously negative: such funds allow the country to develop and purchase products that can subsequently recapture their value with profit, explained Georgy Ostapkovich, director of the HSE Center for Economic Research and Economic Development. But you should always stick to the golden mean.

According to the criteria of the World Bank and the IMF, the level of external public debt of less than 30% of GDP is considered safe, said independent expert Andrei Barkhota. Currently, the external debt of the Russian Federation in terms of the average monthly dollar exchange rate for April is equivalent to 17.5 trillion rubles, which is about 9% of Russia's GDP for 2024, Vladimir Eremkin estimated.

Photo: IZVESTIA/Dmitry Korotaev

Russia has one of the lowest levels of external public debt among the G20 countries. In particular, the US external debt rose to $27 trillion in 2024, which is almost 100% of GDP (the US economy amounted to $29 trillion). In Japan, this figure completely exceeded GDP last year, amounting to $8.9 trillion.

— The most important thing is whether the country can pay off its debts. This is influenced by a good tax base and export earnings," explained Vladimir Skalkin, PhD in Economics.

The pros and cons of external debt

However, too significant a reduction in external borrowings carries a number of difficulties. Their shortage may slow down investment projects that could be financed by external debt, Vladimir Eremkin emphasized.

Photo: IZVESTIA/Dmitry Korotaev

In today's situation, an increase in the level of external debt would help the Russian economy return to broad cooperation with other countries and restore trust from former partners, Andrei Barkhota added.

— The closeness of foreign markets and non-resident investors poses an even greater danger than a higher level of external debt. This is due to the fact that in the case of financial exclusion from other states, funds to cover budget deficits are usually found within the country," said Andrei Barkhota.

Another option is to borrow domestically through the issuance of OFZs. However, now it is extremely unprofitable for the state to issue them, since the key rate is too high — 21%. Foreign loans in conditions of a relatively stable ruble exchange rate often represented an opportunity to gain access to cheaper capital, Vladimir Eremkin continued. For example, in the United States, the Fed's rate is now much lower — 4.5%.

Entering the debt market of some friendly countries may become a source of cheaper capital for the implementation of large projects, concluded Vladimir Eremkin. We can talk about China or the BRICS countries.