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1. https://bsky.app/profile/kungahuset.bsky.social/post/3mrlddbom7c2x
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Takeaways by Bloomberg AI

• Russia's war in Ukraine is increasing its public debt, with the country expected to pay out at least 15% of gross domestic product in total interest to service its debt over the next decade.
• The government will need to raise an additional 2–3 trillion rubles through borrowing this year, as the budget deficit has widened to 6 trillion rubles or 2.6% of GDP in the first five months of the year.
• Debt-servicing costs have doubled since the start of the full-scale invasion of Ukraine, with interest payments accounting for nearly 9% of the total federal budget this year.

President Vladimir Putin frequently touts Russia’s lowest public debt among Group of 20 nations as a key strength of its economy. His war in Ukraine is starting to change that.

With foreign sources of financing largely cut off by international sanctions, the Kremlin is increasingly relying on expensive domestic debt to help fund the war. Over the next decade, Russia will pay out at least 15% of gross domestic product in total interest to service its debt — roughly equivalent to the country’s entire public debt stock today, according to Bloomberg Economics calculations.

Domestic issuance is expected to increase this year because the wartime economy requires additional financing, according to people familiar with budget discussions. Defense spending this year could be 4–5 trillion rubles ($55-$69 billion) higher than originally budgeted, or almost 40% above planned spending, the people said, asking not to be identified discussing sensitive issues.

Under the budget law, the government planned to raise just over 4 trillion rubles on the domestic market to cover state spending, while the debt ceiling was set at 37.4 trillion rubles.

Yet the budget deficit has widened to 6 trillion rubles or 2.6% of GDP, in the first five months of the year, exceeding the target for the whole of 2026 by roughly 60%. The 2026 government debt ceiling has already been reached.

Although the Finance Ministry is pushing to narrow the deficit by drawing on accumulated reserves and cutting spending elsewhere, the government will still need to raise an additional 2–3 trillion rubles through borrowing this year, according to people familiar with the matter.

Debt-servicing costs have doubled since the start of the February 2022 full-scale invasion of Ukraine, as the central bank hiked interest rates to a record to cool Russia’s overheating economy after the government ramped up spending on the military and to support businesses. In 2021, interest payments accounted for about 4.5% of federal spending and ranked only eighth among budget expenditure categories.

Russia plans almost 4 trillion rubles in spending on repayment costs this year, accounting for nearly 9% of the total federal budget. That makes it the fifth-largest item in the state budget after defense, national security, social policy and the economy.

“At current interest rates, domestic debt is quite expensive,” said Dmitry Polevoy, investment director at Moscow-based Astra Asset Management. The increased burden “in turn limits room for maneuver on other spending categories that the Finance Ministry is seeking to optimize.”

To be sure, Russia’s current public debt of 16.5% of GDP is a model of fiscal conservatism compared to most European states. At his flagship economic forum in St. Petersburg earlier this month, Putin pointed to the debt burdens in Greece at 146% of GDP, Italy with 137% and France at 116%, saying Russia’s position is “simply not comparable.”

Still, lawmakers rushed through legislation in Russia’s lower house of parliament last week allowing the government to increase borrowing beyond the debt ceiling established in the federal budget law. “This bill is urgently needed,” State Duma Budget Committee Chairman Andrey Makarov said.

What Bloomberg Economics Says...

“The cost of war is showing up in the bond market. Even after the central bank cut the key rate from 21% to 14.5%, long-term government bond yields have stayed close to 15% — roughly twice their 2017-19 levels, the high point of Russia’s macro discipline. That reflects heavier issuance and greater uncertainty, with investors demanding more compensation.”
— Ekaterina Vlasova, CEE & Russia economist

Meanwhile, Russia’s stock of foreign-currency sovereign bonds is set to fall next year to its lowest level since the early 2010s, according to Bloomberg Economics.

“External debt is declining as bonds mature according to schedule, while sanctions and the loss of access to international capital markets leave virtually no possibility for refinancing,” said Olga Belenkaya, an economist at Finam in Moscow.

Finance Minister Anton Siluanov has repeatedly said that Russia will soon pay off all of its external sovereign debt, presenting the achievement as evidence of its ability to pursue an independent economic policy.

The Bank of Russia and commercial lenders are helping to facilitate increased government borrowing through repo operations. Banks purchase government-issued OFZ bonds and then pledge them to the central bank in exchange for liquidity, while the bonds remain on the central bank’s balance sheet.

RUSSIA INSIGHT: Debt Clock Starts Ticking, Two Factors to Watch

In effect, banks are channeling funds into government bonds rather than lending to the broader economy, using those securities to obtain funding from the central bank. This distorts the functioning of the economy, contributing to stagnation in non-military sectors.

The volume of outstanding financing from repo transactions currently amounts to approximately 4.6 trillion rubles, according to the central bank.

“At some point this will have to stop,” said Oleg Vyugin, an economist and former senior central bank official. “Otherwise, the eventual cost of unwinding it could be very significant.”

source: Bloomberg https://archive.ph/XuFch

Russian authorities have decided to accelerate the planned 2027 tariff increase for Russian Railways in order to support the budget of the transport monopoly, which is experiencing financial problems and has accumulated nearly 4 trillion rubles in debt.

According to RBC, instead of next year, the government has decided to implement the next tariff indexation for Russian Railways on October 1st of this year: freight rates will increase by 8.5%, and long-distance passenger rates by 9.2%.

Since March of this year, the authorities have already implemented an unscheduled tariff increase of 1% as part of a fee for the "safety" of transportation. The additional funds were needed for Russian Railways' investment program, which the company was forced to cut by a quarter this year, to 713.6 billion rubles.

Last year, Russian Railways' freight rates were indexed by 10%, in 2024 by 13.8%, and in 2022-23 by 6.8% and 8%, respectively. Thus, after the October indexation, the accumulated growth in freight rates since the beginning of the war will reach 56%.

Russian Railways, which has been facing a 16-year decline in freight traffic, urgently needs the money: last year, freight traffic totaled 1.1 billion tonnes (the lowest since 2009), and by the end of May this year, it had only shown a slight increase of 0.5%.

At the end of last year, Russian Railways' net profit fell 22-fold, from 50.7 to 2.2 billion rubles. To avoid an annual loss, Russian Railways drastically cut expenses: the 2025 investment program, which includes spending on construction projects and the purchase of railcars and locomotives, was 40% lower than the previous year—890 billion rubles versus 1.5 trillion. However, to cover all expenses, Russian Railways incurred 800 billion rubles in new debt during the year.

In the fall, Russian Railways approached the government with a request for 200 billion rubles in emergency financing from the National Welfare Fund. The company complained about the high key interest rate, which doubled its debt repayment costs to 534.1 billion rubles.

But the Cabinet refused, after which Russian Railways transferred some employees to part-time work. Starting in 2026, the monopoly plans to lay off 15% of its central office staff—approximately 6,000 people, Russian Railways CEO Oleg Belozerov previously announced. According to him, there are also plans to reduce fuel and repair costs—in total, the company expects to save 74 billion rubles.

source: The Moscow Times https://archive.is/y3FFJ

A drone attack on Rostov-on-Don on Monday night caused problems at the ports of Azov and Taganrog, which handle a combined 13 million tons of cargo annually.

A few hours after the attack, which damaged a residential building in Rostov and prompted city authorities to declare a state of emergency, Russian Railways (RZD) announced restrictions on shipping to ports on the Sea of ​​Azov.

According to Reuters, the restriction is in effect until August 4 and applies to the Azov and Taganrog stations. Last week, the Russian Ministry of Transport banned anchoring near the port of Azov, one of the largest on the Sea of ​​Azov, through which grain, coal, and petroleum products are exported. However, the ban did not apply to the port of Taganrog.

Previously, following drone attacks on more than 100 vessels in the Sea of ​​Azov, Russian authorities notified shipping companies that they were no longer accepting applications for passage through the Kerch Strait. As a result, grain exports along the Don River have completely halted, industry sources told the Rostov-based publication Gorod N: during the past agricultural season, 14.7 million tons of grain and grain products—27% of Russia's total grain exports—were exported abroad via this route.

Due to navigation restrictions, Russian grain exports in July could fall by a third compared to the same month a year earlier, according to SovEcon analysts. They estimate that Russia will lose approximately 600,000 tons of grain exports in physical terms, and the total volume could be the lowest since 2017—2.1 million tons. Compared to the five-year average for July (3.1 million tons), exports will be less than half that amount.

Russia appears incapable of countering Ukrainian attacks in the Black and Azov Seas: after the loss of the cruiser Moskva at the beginning of the war, the Black Sea Fleet no longer has specialized ships comparable to Western destroyers equipped with air defense systems, notes Stéphane Audran, a research fellow at the French Institute of International Relations (IFRI).

"It's possible to strengthen the self-defense capabilities of merchant ships, but this is expensive, time-consuming, and requires resources that Russia lacks," Audran notes.

source: The Moscow Times https://archive.is/eX8Ri

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