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Foreign Debt Growth
Outlook
December 2010
Anton Stroutchenevski, Senior Economist
Slide 1 | December 2010 | Foreign Debt Growth Outlook
Russia faces mostly institutional constraints to
borrow externally
 Russia is still among the countries with quite low foreign debt/GDP.
 However, capital flows are very volatile: in 1H08, Russia enjoyed a net
capital inflow that rapidly turned into a net capital outflow in 2H08.
 The potential for export growth acceleration is limited. Thus, there is a threat
that the trade balance will start shrinking if oil prices stabilize.
 Without institutional changes, the country will not be able to borrow
externally.
Slide 2 | December 2010 | Foreign Debt Growth Outlook
GDP per capita in the former Soviet republics
in 1991 and 2009, $
15,000
12,000
9,000
6,000
3,000
1991
Source: IMF
Slide 3 | December 2010 | Foreign Debt Growth Outlook
2009
Uzbekistan
Ukraine
Turkmenistan
Tajikistan
Russia
Moldova
Lithuania
Latvia
Kyrgyzstan
Kazakhstan
Georgia
Estonia
Belarus
Azerbaijan
Armenia
0
GDP per capita in the former Soviet republics
in 2009 and external borrowing
16
Estonia
14
GDP per capita, $ ’000
12
Latvia
Lithuania
10
Russia
8
Kazakhstan
6
Belarus
Azerbaijan
4
Turkmenistan
Georgia
2
Uzbekistan
Armenia
Ukraine
Moldova
Kyrgyzstan
Tajikistan
0
0%
20%
40%
60%
80%
External debt/ GDP
Source: IMF, CIA, national banks
Slide 4 | December 2010 | Foreign Debt Growth Outlook
100%
120%
140%
160%
Foreign debt accumulation slowed after the crisis
Public debt
Private debt
Source: Central Bank, State Statistics Service, Troika estimates
Slide 5 | December 2010 | Foreign Debt Growth Outlook
3Q10
1Q10
3Q09
1Q09
3Q08
0%
1Q08
0
3Q07
6%
1Q07
100
3Q06
12%
1Q06
200
3Q05
18%
1Q05
300
3Q04
24%
1Q04
400
3Q03
30%
1Q03
500
3Q02
36%
1Q02
600
Private debt/GDP (rhs)
The Central Bank expects capital inflow to finance
negative current account in long run, $ bln
Oil price, $/ bbl Urals
Current account
Export of good and services
Import of good and services
Other
Capital account
Government and monetary authorities
Private sector
Changes in gross international reserves
2011E
2012E
2013E
60
14.4
388.3
-329.3
-44.6
- 13.0
2.0
-15.0
- 1.4
60
- 14.5
389.6
-359.2
-44.9
2.0
2.0
0.0
12.5
60
- 39.4
395.8
-389.4
-45.8
7.0
2.0
5.0
32.4
Oil price, $/ bbl Urals
Current account
Export of good and services
Import of good and services
Other
Capital account
Government and monetary authorities
Private sector
Changes in gross international reserves
Source: Central Bank
Source: Central Bank
Oil price, $/ bbl Urals
Current account
Export of good and services
Import of good and services
Other
Capital account
Government and monetary authorities
Private sector
Changes in gross international reserves
Source: Central Bank
Slide 6 | December 2010 | Foreign Debt Growth Outlook
2011E
2012E
2013E
90
78.4
495.8
-364.1
-53.3
22.0
2.0
20.0
- 100.4
95
60.5
535.9
-421.9
-53.5
27.0
2.0
25.0
- 87.5
95
17.6
561.1
-488.8
-54.7
32.0
2.0
30.0
- 49.6
2011E
2012E
2013E
75
46.2
448.5
-352.0
-50.3
12.0
2.0
10.0
- 58.2
78
30.3
471.1
-390.3
-50.5
17.0
2.0
15.0
- 47.3
79
- 5.7
489.6
-443.8
-51.5
22.0
2.0
20.0
- 16.3
Russia was attractive for investors only when
macroeconomic risks were low and oil prices were growing
150
100
$ bln
50
0
-50
-100
Current account
Capital flows
Source: Central Bank
Changes in gross international
reserves
Slide 7 | December 2010 | Foreign Debt Growth Outlook
2010E
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
-150
After the crisis, economic growth decelerated…
12%
8%
4%
0%
-4%
Source: State Statistics Service
Slide 8 | December 2010 | Foreign Debt Growth Outlook
2011E
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
-12%
2010E
-8%
… external and internal balances deteriorated…
Current account and budget balance,
% of GDP
Breakeven oil price for federal budget
120
15%
100
10%
80
$/bbl Urals
20%
5%
0%
-5%
60
40
20
Current account
2011E
2010E
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
-10%
0
2003
2004
2005
2006
2007
Federal budget balance
Source: Finance Ministry, Troika estimates
Slide 9 | December 2010 | Foreign Debt Growth Outlook
Source: Finance Ministry, Troika estimates
2008
2009 2010E 2011E
… inflation accelerated…
CPI, y-o-y
CPI, YTD
16%
10%
14%
8%
12%
6%
10%
4%
8%
2%
6%
4%
2003
0%
2004
2005
2006
2007
2008
2009
2010
Jan Feb Mar Apr May Jun
2009
Source: State Statistics Service
Slide 10 | December 2010 | Foreign Debt Growth Outlook
Source: State Statistics Service
Jul
Aug Sep Oct Nov Dec
2010
… and the ruble depreciated, despite high oil prices
38
41
30%
39
25%
37
20%
35
15%
33
10%
31
5%
26
29
0%
01/2007 07/2007 01/2008 07/2008 01/2009 07/2009 01/2010 07/2010 01/2011
24
36
34
RUB/EUR-USD 1
1d MIACR (rhs)
32
R/$
30
28
22
20
20
40
60
80
$/bbl Urals
Source: Central Bank
Slide 11 | December 2010 | Foreign Debt Growth Outlook
Source: Central Bank
100
120
140
Who will Russia compete with on capital markets?
Current account deficits, 2009, $ bln
South Africa, 11
Other, 168
Turkey, 14
United States,
378
Iraq, 17
Portugal, 23
United Kingdom,
24
Brazil, 24
India, 36
Greece, 37
Canada, 38
Australia, 44
France, 51
Source: IMF
Slide 12 | December 2010 | Foreign Debt Growth Outlook
Spain, 81
Italy, 67
The quality of Russia’s institutions is too low to
compete for sufficient inflow
1,000
Total borrowing
at $14 bln
Total borrowing at $951 bln
Russia (3.22)
Borrowing, $ bln
100
10
1
0
2.50
3.00
3.50
4.00
4.50
5.00
The quality of institutions
Source: IMF, World Economic Forum
Slide 13 | December 2010 | Foreign Debt Growth Outlook
5.50
6.00
6.50
Due to poor quality of domestic institutions, capital
outflow remains sustainable
Changes in foreign assets of domestic economy
30
20
$ bln
10
0
-10
-20
-30
-40
1Q09
2Q09
Banks
3Q09
Population
Source: Central Bank
Slide 14 | December 2010 | Foreign Debt Growth Outlook
4Q09
1Q10
2Q10
Non-financial sector
3Q10
Conclusions
 Without improvement in macroeconomic policy and the quality of its
institutions, Russia will be hardly able to compete successfully on the capital
markets and guarantee sustainable capital inflow.
 Domestic capital outflow trends will remain an important measure of the
country’s appeal to investors.
Slide 15 | December 2010 | Foreign Debt Growth Outlook
Slide 16 | December 2010 | Foreign Debt Growth Outlook
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Slide 17 | December 2010 | Foreign Debt Growth Outlook
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