State opts for now on global borrowings

The Russian government plans to borrow up to $17 billion on the international markets. But analysts disagree on the wisdom of borrowing - when the global financial crisis is far from over.

Russia has some of the world's largest currency reserves. But it's no irony that it should also try to borrow abroad. Analysts say Russia's strong credit profile should allow it to borrow cheaply. The first round of borrowing is expected to total about $5 billion – at an interest rate, or yield, of 5%. Yulia Tseplyaeva, Chief Economist at BNP Paribas Russia believes it could be better to go to the markets now with a bond offering than later.

“In our view it's worthwhile to borrow more now when global market conditions are so favourable and to borrow cheaper rather than to postpone more aggressive borrowing to year 2011-2012 when global liquidity may deteriorate and Russia will have to borrow more expensive.”

Nikolay Podguzov, Head of Bond Strategy at Renaissance Capital, believes, however there is no urgency to borrow internationally and that domestic markets could have been tapped.

“Probably the domestic bond market should be used more actively for financing the budget deficit rather than external, that's what the global and international practice tell us, we're watching that Brazil, Mexico and some other main emerging market countries significantly reduced their external borrowings and increased domestic borrowings.”

The gap between what the government spends – and what it receives in income from taxes – will be in deficit this year to the tune of about 6%.

Much of Russia's government income depends on oil and gas prices – and if they fall, spending could come under pressure. Analysts say the budget deficit is unlikely to disappear in the next two years.