Russian government debt costs 2024 and beyond
Russian spending to finance debt is rising
If we listen to Russian government claims, look at current interest rates, and do some simple calculations, then Russian federal debt interest payments1 are on course to rise from ~1.5 trillion in 2023 to over 3 trillion in 2025. And rise from there.
This is only one pathway and Russia could default, print money, sell assets or play financial games. Any combination of things could happen, such as with sanctions or oil prices, that would require different calculations. I thank Prune60 and Stanimir Dobrev for posting Russian news stories and financial data, but I’m not a skilled finance person - any mistakes are mine alone and I welcome corrections.
Paying for the war
Russia is like an addict, whose heroin is currently an unprovoked war of conquest against Ukraine. They fund their habit through (1) income, (2) theft, (3) cutting spending elsewhere, (4) drawing down savings, (5) taking on debt, and (6) selling longer-term assets.
The announced Russian budget includes expected income (e.g. tax changes), theft (e.g. seized foreign assets), and spending cuts elsewhere. Accounting for those, they project a 2024 deficit. In December 2023 they announced a planned 1.6 trillion rouble deficit, then in June the budget law said 2.1 trillion, and more recently Putin signed a decree allowing up to 3.6 trillion, with an extra 1.5 trillion taken from the National Wealth Fund (NWF, their savings). This post will look into how they’ll fund part of the deficit using published information on Russian OFZ bonds.
Russian bond financing costs
When governments sell bonds, they get cash but have to make regular payments (the “coupon”) and later buy back the bonds. In 2023, Russia paid out 1.55 trillion in coupon payments, and by my count 2024 is on course for almost 2.15 trillion2.
Russia’s official goal is to sell about 2 trillion roubles of OFZ bonds in November & December 2024. To encourage this, Russia has started repo auctions to encourage banks to buy bonds, and is issuing new variable rate OFZs. Assuming they hit their 2 trillion goal with variable-rate bonds, the table below estimates Russia’s OFZ debt and payments in 2025, ignoring any new 2025 debt. The bold green number is an estimate of the coupon payments, assuming the Central Bank raises interest rates from 21% to 23% in December. The total amount includes the requirement to buy back some expiring bonds, mostly fixed-rate bonds at an average coupon of 6.2%.
Russian financial planning in 2025
During 2025, Russia should provide updated 2025 and 2026 budgets. Current plans are to borrow 4.8 trillion roubles in 2025, assuming 15% interest rate and 2.5% growth with 4.5% inflation. The numbers will depend on what those numbers actually are, oil prices, aid to Ukraine, the strength of sanctions, bank liquidity etc.
As an example: if interest rates hit 25% then government debt should cost ~0.8 trillion over budget3. Russia also guarantees low mortgage rates to some buyers, potentially increasing budget costs if rates go up. If the high interest rates persist, then when Russia plans its 2026 budget, it might have to consider the potential for coupon payments in the 4—5 trillion range and total financing costs exceeding 6 trillion.
Conclusions
Finances are complicated and there are many caveats, do not believe that this is the path that will definitely happen. I just wanted to get a realistic reference point to understand a bit more about Russia’s finances, which could be crucial for the war’s outcome.
I hope to post more about Russian finances and use it as a diary of my understanding and opinions. By writing things somewhere public I won’t be able to dodge accountability from my future self if I arrogantly got things wrong. Overall, I’m getting convinced that Russia is facing serious financial and economic risks by continuing the war, and they are desperate for Western abandonment of Ukraine because they cannot maintain this intense pace.
Technically just the coupon payments on outstanding bonds, rather than interest. But I think most readers will be more familiar with the idea of interest and it seems close enough so I’ll use that word.
Although Russia did a surprise increase in coupon taxes from 15% to 20%, clawing back some of those payments. This might get them an extra 100bn+ roubles this year, but investors will probably want even better terms from Russia in future. Once again, Russia’s burning its future to help fund its needless war hobby.
Coupon payments would likely be around 1 trillion more than expected, but they would tax 20% of that so actually need 0.8 trillion.