Russia May Slash Borrowing This Year as Oil Revenues Surge

Russia may cut its 2021 borrowing plan by 500 billion rubles ($6.8 billion) as the economy starts to pull out of a pandemic-related slump, supported by a surge in oil prices.

The government is discussing a proposal to cut borrowing this year to 3.2 trillion rubles from 3.7 trillion rubles, according to two officials with knowledge of the matter, who asked not to be identified because the talks are ongoing. One of them said the reduction could end up being as high as 1 trillion rubles.

A more than 20% jump in oil prices this year has given Russia’s economy a boost after it contracted during the coronavirus pandemic last year. The government has about 450 billion rubles left over from last year when non-energy revenues came in higher than expected, and that can be used to cover the forecast budget deficit.

“A 14% cut in the annual borrowing plan would be positive for the market, which has been pressured by oversupply fears,” said Dmitry Dolgin, an analyst at ING Bank in Moscow.

The Finance Ministry didn’t immediately respond to a request for comment.

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Russia has already sold about 300 billion rubles of sovereign ruble bonds, known as OFZs, so far this year, including at its biggest auction of fixed-rate government debt since June on Wednesday.

Ten-year yields dropped three basis points to 6.66% on Wednesday, extending a rally that began after the U.S. announced softer-than-expected sanctions. Officials in Washington have warned that more penalties are still to come and it’s not clear if those plans include a previously-shelved proposal to block U.S. banks from investing in OFZs.

“A reduction in issuance needs is welcome and could help stabilize OFZs,” said Jens Nysted, who invests in Russian government bonds as a senior money manager at Emso Asset Management in New York.

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