The Federal Budget provides loans to regions under an interest rate of 0.1% per annum for up to five years. At end 2016, the Russian regions ran RUB 2 bln of budget deficit.
The amount of budget loans was relentlessly striving upwards in 2014–2016. Coupled with low deficit run by non-consolidated regional budgets last year, this allowed regions to change their debt structure. At end 2016, regions’ payables to the Federal Budget exceeded those to banks for the first time since 2011. In 2016, the former expanded again almost by a quarter, while the latter shrank 16%. In other words, the year 2016 saw the entire budgetary system financing its deficit by budget loans, while those taken out of banks were being partially repaid.
Be as it may, but the regional debt structure will face a reverse change (i.e. the share of market borrowings will increase), if the previously issued budget loans are not restructured (prolonged, provide the relevant additional agreements are signed). At the same time, the draft law on the Federal Budget submitted to the State Duma apparently contained no provisions allowing for such prolongation.
In 2013–2016, the Federal Budget envisaged giving out tree-year loans. Comparing volumes and tenors of budget loans issued in 2013–2016 with those of budget loans to be disbursed in 2017–2019 may help gauging the substitution effect of market loans over budget ones in an environment of moderately growing budget deficit (see Figure 2).
Although the current edit of the 2017–2019 Federal Budget law says nothing about the amount of budget loans maturing during this period, the balance of such loans issued and repaid (the amount repaid net of the amount issued) will be positive this year, by ACRA’s estimates. This assumption is supported by the results of the draft law’s first reading in the State Duma. So, in 2017, the regions will repay more budget loans than they will get, which is quite logical considering the fact that the current year is slated to see some RUB 200 bln of new budget loans given out, while around RUB 230–240 bln is expected to be repaid (the loans issued three years ago, i.e. in 2014). The balance is expected reach some RUB 130 bln by 2018 and further RUB 150 bln in 2019.
Budget loan restructuring is neither banned, nor restricted in terms of repayment schedule by the Budget Code. For example, a RUB 50 bln worth of budget loans issued in 2011 for road construction and maintenance was prolonged till 2025–2034 in 2015.
FTD stands for Federal Treasury Department.
One of covenants is absence of deposits.
Size does not exceed the 1/12 of regional budget’s revenues net of targeted transfers.
Term – 50 days.
Starting 2014, the Russian regions have been eligible for FTD loans to replenish their short-term liquidity balances. Previously, to bridge cash gaps they took put short-term loans from banks.
Being practically gratis, FTD loans have a number of limitations. For instance, they have to be repaid not later than November 25 of the current year. But the year-end traditionally accounts for a significant share of regional budget expenditures. So in December, regions most proactively borrow from banks: in 2012–2016, they used to take out bank loans averaging RUB 54 bln in January–November, but as much as RUB 247 bln in December. In 2015–2016, when the FTD tool became most popular, the situation hardly changed much, with December seeing RUB 200 bln taken out of banks in 2015 and Rub 259 bln in 2016.
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