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Russia’s Nabiullina Advocates Tripling Debt to Support Growth

Russia may almost triple the amount of sovereign debt over the next two decades as the government boosts spending to diversify the economy of the world’s biggest energy supplier, Economy Minister Elvira Nabiullina said.

State debt may rise to 27 percent of gross domestic product without reaching a “critical” level, Nabiullina told reporters in Moscow today. Government debt currently stands at 9.5 percent of GDP, Finance Minister Alexei Kudrin said Feb. 2.

The government may need to continue running a deficit for two decades to meet its spending commitments, Nabiullina said. The shortfall may average between 2 percent and 3 percent of GDP a year to 2030 to fund infrastructure, pension and health-care reforms, lifting the level of state debt above 30 percent after 2025, according to the ministry’s explanatory note submitted to the government Feb. 10.

“This debt is safe from the point of view of not putting pressure on private investments,” Nabiullina said. “Of course, the smaller the debt, the better.”

The Economy Ministry has two scenarios for Russia’s economic development through 2030, one based on “inertia” and the other on innovation, which proposes earmarking extra funds for education and research, Nabiullina said. Both forecasts are based on Urals crude, Russia’s chief export blend, rising by about 1 percent annually in real terms to $101 per barrel in 2020 and $140 per barrel in 2030.

Budget Deficit

The Finance Ministry is trying to narrow the budget shortfall from a 2010 gap of 3.9 percent. Urals crude averaged $94.4 per barrel in 2008 before plummeting to $61.1 the following year, helping swing the budget from a 4.1 percent surplus to a 5.9 percent gap, Kudrin said last week in Krasnoyarsk, Russia.

“When people say to me, let’s run a 3 percent deficit when oil costs $90 per barrel, I think that’s a hopeless policy,” Kudrin said. “State debt can’t be more than 30 percent.”

That level would pose dangers for Russia because of the country’s dependence on volatile revenue from oil, according to Kudrin. Increased state borrowing would also choke companies’ ability to raise funds, he said.

To contact the reporters on this story: Scott Rose in London at rrose10@bloomberg.net; Lyubov Pronina in Moscow at lpronina@bloomberg.net.

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net.

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