Russian Financial Reserves Now Fully Cover All Internal and External Debt

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Russia’s foreign exchange reserves can now cover all of the debt owed by both government and domestic businesses, Russian President Vladimir Putin has announced. Speaking at the Federal Assembly in Moscow, Russia’s effective “State of the Union” address, he stated: “For the first time in history our reserves fully cover foreign debt, including government and commercial sector debt.” Russia’s external debt amounts to US$453.7 billion, while its international reserve funds stand at US$475 billion as of February 8, 2019, according to infographics presented by the president.

Russia’s external debt has fallen by US$64.4 billion or 12.4 percent from the beginning of last year to the lowest level in a decade, the Central Bank of Russia announced in January. Moscow has reduced its foreign debt by US$280 billion since mid-2014, when it reached a peak of nearly US$733 billion due to the initial impact of Western sanctions.
Meanwhile, Russia’s foreign exchange reserves have been growing for three consecutive years, increasing 8.3 percent to over US$468 billion in the beginning of this year.

Putin added that money allocated by Russia’s sovereign wealth fund also greatly contributes to the national budget, amounting to more than US$1 billion last year.

The Russian president said he wants the national economy to grow more than 3 percent in 2021, with foreign investment in the country set to rise 6-7 percent. To reach such figures, the president set several tasks for the government, such as increased productivity, making Russia attractive to foreign companies, and improving regional infrastructure.

“Much of Western and global economics are built on debt,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “US debt for example is reported as being US$21.9 Trillion. Russia has gone in completely the opposite direction. The academic issue with this is that Western economists study the West’s debt financing model, and not Russia’s. From an experienced business perspective Russia’s strategy makes far more sense. But national economies, and their political nuances are a different matter. Time will tell what this means for Russia as now it is in a position to concentrate on developing an economy free of debt and continually increase its holdings. With the old USSR effectively being bankrupted by the United States we are now entering into a new phase of financial competition. One thing is for sure – if there are any systematic weaknesses in the United States or global financial systems, Russia will be able to ride them out with far less domestic pain than would otherwise be the case. The implications of Russia’s attitude towards debt deserves further academic study in the West.”

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Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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