Minfin's 3Q20 borrowing plan remains ambitious

RUSSIA ECONOMICS - In Brief 01 Jul 2020 by Alexander Kudrin
The Russian Finance Ministry announced its borrowing plan for 3Q20, which assumes the issuance of OFZ worth of R1 trln. This figure can help to estimate the aggregate amount of the placements for FY’20 as traditionally, the government targets a rather even quarterly allocation of borrowing during the year. In other words, it means that by year-end Minfin plans to issue OFZ worth of R2 trln (in gross terms), which seems a rather ambitious target as in 1H20 it managed to place ruble bonds equivalent to R1.6 trln.GKEM Analytica wrote in the previous notes, that the current level of yields for ruble Sovereigns doesn't look very attractive both for domestic banks and international investors. The local banks are not happy with the premium, which these papers offer to the cost of funding. Foreign buyers are already overweight and currently, there are no strong macroeconomic reasons to increase the exposure. Unsurprisingly, the Finance Ministry faced low demand during the last two auctions which were held after CBR cut the rate by 100 bps and expectations regarding further monetary policy easing became muted (the total amount of placements was only R77 bln). That being said the Finance Ministry has limited chances to execute the aforementioned 3Q20 borrowing plan.However, a lack of demand for OFZ is unlikely to be a problem for the execution of the budget. Firstly, the Government’s forecast of the federal budget deficit, which is currently expected to be 5% of GDP, looks too negative. GKEM Analytica expects it to be at 3.7% of GDP, and it may be even lower if the oil price will keep climbing up. Hence, the actual needs for borrowing may be significantly lower. Meanwhile, assum...

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