Russia’s gross external debt increased by USD13.7bn in Q1’19 to USD467.8bn, which is the largest quarterly gain since the annexation of Crimea and the Western sanctions. The increase is due to the surge of nonresident demand for Russian assets in Q1, especially in March. The bulk of the increase (USD9.6bn) is due to higher government external debt, reflecting USD3.9bn increase in nonresident Eurobond holdings and USD5.6bn net purchases of OFZ bonds. In the case of Eurobonds, the increase is due both to new issuance (USD3bn and EUR750m) and secondary market purchases. Meanwhile, the banking sector continues to deleverage as its external debt fell by USD2.3bn in Q1 to USD82bn. Banking sector external debt is now less than half of the USD214bn peak reached before the Western sanctions, thus reducing external vulnerabilities. External debt of the real sector was up by USD4.3bn due to higher liabilities to direct investors.
We estimate that gross external debt rose to 28.6% of the GDP in Q1 compared to 27.4% at the end of 2018. At these levels it is not a concern and Russia remains a large net external creditor. In fact, its creditor position has strengthened and currently CBR forex reserves alone are sufficient to cover the entire gross external debt.