Russia to double costs of servicing state debt by 2026 as war costs grow

By Darya Korsunskaya and Alexander Marrow

(Reuters) – Russia’s annual budget spending on servicing its state debt will more than double to 3.32 trillion roubles ($34.24 billion) between now and 2026 as Moscow ramps up military spending to fund the war in Ukraine, draft budget documents showed.

Moscow has been diverting more and more funds to its military as it prosecutes what it calls a “special military operation” in Ukraine and is counting on a recovery in oil and gas revenues to pre-invasion levels, as well as a sharp increase in state debt to do so.

In 2021, Russia allocated 4.4% of all spending to servicing its state debt. By 2026, that share will increase to 9.3%, according to the finance ministry’s budget documents that outline the government’s fiscal plans from 2024-2026.

Over that three-year period, Russia plans to borrow 13.3 trillion roubles domestically, with the annual figure rising from 2.5 trillion roubles in 2023 to almost 5 trillion roubles in 2026.

Domestic borrowing will be the main source of funding Russia’s budget deficit, which the government expects to remain below 1% of gross domestic product (GDP) in the coming years, down from 1.8% of GDP expected in 2023.

The strain from Russia’s budget deficit is gradually easing, narrowing to around $24 billion in January-August.

The planned borrowing increase runs at odds with the finance ministry’s mood. Finance Minister Anton Siluanov on Thursday said the government had decided to cut its state borrowing plan by 1 trillion roubles this year, wanting to avoid overpaying as high rates have increased banks’ appetite for premiums.

Russia’s 2023 domestic borrowing plan amounts to 2.5 trillion roubles, but the finance ministry has the right to borrow up to 1 trillion roubles to replace spending from the National Wealth Fund that it uses to cover the budget deficit.

Western sanctions against Russia have made borrowing in dollars and euros impossible.

($1 = 96.9725 roubles)

(Reporting by Darya Korsunskaya and Alexander Marrow, Editing by Louise Heavens)