Minfin’s borrowing program remains ambitious

RUSSIA ECONOMICS - In Brief 06 Jan 2021 by Alexander Kudrin

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Despite better-than-expected execution of the borrowing program in 2020, Russia’s Finance Ministry plans to keep a relatively high pace of OFZ issuance in 1Q21, which is comparable with the results achieved in the second and third quarters of 2020. To remind, it managed to raise R5.3 trln on the domestic market and EUR2 bln externally, while the target for the placements was set at R5.1 trln. In other words, the Finance Ministry pre-financed the 2021 budget by R375 bln. If we take into account that expenditures worth up to R1 trln were shifted from the previous year to 2021, then it turns out that borrowing on the open market is not quite necessary.Nevertheless, the Finance Ministry announced that it plans to place OFZs worth up to R1 trln in 1Q21. It stands for about 27% of the annual plan, which looks ambitious given the low activity of local investors in the first two weeks of the year due to the Christmas holidays. Most likely, the government is expecting international players to express more demand for ruble bonds. This can be confirmed by the comments of Minfin’s officials, who mentioned that the main focus will be on the issuance of mid- and long-term papers with the fixed interest rate, the segment traditionally dominated by international investors.Also, one has to keep in mind that the official forecast of the budget revenues is conservative and it could happen that actual proceeds will be higher than planned. If so, the annual borrowing plan may be even cut somewhere in 2H21. In this case, the supply of OFZ on the primary market will be distributed unevenly with the bigger portion placed in the first half of the year.Evgeny GavrilenkovAlexander Kudrin