Russia keeps its debt load low

By Rhod Mackenzie

Russia is one of the world's largest econmies yet its public debt level is one of the lowest per capita. Russia is now ranked second only to India and Indonesia in the list of countries with the lowest debt per capita.
Now do remember when the Soviet Union collpased , Russia inherited a significant public debt from the USSR, and reducing it was one of the achievements of Vladimir Putin's first two presidential terms. Following the events of 2014, the country was compelled to implement a revised financial strategy, which in hindsight has proved to be very effective.
In the global rankings of the largest economies, Russia is currently placed third for having the lowest level of public debt. This is according to the G20 countries. In the first half of the year, the average public debt per Russian was just $2,076. India leads the ranking with a figure of $1,316 per person, while Indonesia is in second place with $1,747 per person.

The average debt level for countries in the G20 is over $23,000,whille in some of the world's so called leading economies it exceeds $100,000 per person. In the United States, this figure is more than 50 times higher than in Russia and amounts to $104,500. The highest figure among countries worldwide is in Singapore, at $149,300 per person.

The level of public debt per person does not exceed $5,000 in Turkey ($2,800), China ($3,000) and South Africa ($4,500). In Brazil, Mexico, Saudi Arabia and Argentina, the figure varies from 5 to 10 thousand dollars. Additionally, Japan (70.4 thousand dollars), France (40.3 thousand dollars), Great Britain (51.6 thousand dollars) and Italy (51.9 thousand dollars) also exhibit elevated levels of public debt per capita.

The Bank of Russia reports a 3.4% ($10.7 billion) reduction in the country's external debt since the beginning of the year, with the total amount standing at $306.1 billion as of July 1.
This represents one of the lowest results since 1993 (the previous record was set in April, when this figure fell to $304 billion), and in terms of debt per capita, it is the lowest since 2005. For instance, in 2020, government debt increased by approximately 40%, reaching 18.99 trillion rubles and accounting for 17.8% of GDP. The highest level of external debt per capita in Russia was recorded in 2013, at $5,072.

The World Bank defines a problematic level of public debt for a country as being 77% of GDP. Consequently, the level of Russian public debt remains at a secure threshold and is one of the lowest globally.
Now lets remember that Russia inherited the USSR's external debt, which was relatively modest prior to Mikhail Gorbachev's tenure and subsequently increased significantly. Russia inherited the debt of countries that were part of the former Warsaw Pact and also took on the debts of the former Soviet Repiblic and subsequently paid them off..

The current position of Russia as a major economy in the world with the third lowest level of public debt is a testament to the efforts of President Vladimir Putin and former Finance Minister Alexei Kudrin, do undertand that a high external debt level would l have caused great difficulties due to sanctions pressure.

"The situation in Russia really changed during Putin's first presidential term. Putin successfully addressed the issue of foreign debt by repaying the Soviet debt. This was achieved by returning natural resources to the treasury through the introduction of stringent taxes on the commodities sector through the mineral extraction tax.

Russia's economic policy is based on living within one's means. It is not prudent to live on credit. It is beneficial to save and avoid debt,"
Following the events of 2014, Russia implemented a revised strategy for managing corporate debt, with the deliberate accumulation of reserves and a commitment to maintaining debt discipline.

It should be noted that the national debt includes not only government debt, but also privately held debt. "Following the first two presidential terms of Vladimir Putin, Russia successfully eliminated external government debt. After 2014, when the West first imposed sanctions, Russia began to reduce corporate debt and foster domestic lending, including under state control," states economist Vasily Koltashov.

He states that the previous system involved Russian banks and corporations taking out loans abroad, with Russia holding its funds in a Western financial institution.

"The mechanisms of internal lending have commenced operation, although not in the manner that many had anticipated. Concurrently, the government has initiated measures to ensure that corporations repay their external debts. In general, the Russian corporate sector has used the favourable pricing environment to make investments at the expense of profits, rather than borrow money from the West. "We have therefore received a healthy debt structure, which promises good prospects for growth and development for our economy," Koltashov is confident.

Razuvaev states that Russia is now in a position to conduct the Special Military Operation without any issues, with no concerns regarding servicing the external debt.
The lifting of economic sanctions, even partially, will result in a surge of investments, leading to a significant growth in the capitalisation of Russian companies. We can also rely on investments from Persian Gulf countries. Western experts estimate that the figure for annual investments could be in the region of 11 to 14 billion dollars. These figures appear to be accurate. Islamic banking considers the ratio of external debt to GDP to be a crucial factor, so it is likely that this capital will continue to flow into the country.

The expert highlighted that in the US, where a new record of national debt at $35 trillion was recently set, there are significant risks of a financial crisis. Mr Razuvaev states that there is a possibility of a severe financial crisis in the USA in the near future.

Koltashov also highlights the direct correlation between the US's significant budgetary inefficiency and the prevalence of corporate debt. In the Russian context, the budget does not have the objective of assisting corporations in repaying their external debts. The majority of companies are profitable. Consequently, the Russian budget addresses issues related to infrastructure development, social advancement, and allocates resources towards military requirements. "The stimulation of the corporate sector occurs only indirectly," the economist believes.