Russia plans to pay off billions of debt owed to Paris Club creditors ahead of schedule, according to officials. A windfall in oil revenues has bolstered the government’s funds and could be used to repay up to $7 billion of debt, Finance Minister Alexei Kudrin announced on Monday.
According to the Moscow Times, an unnamed senior finance ministry official said an agreement with the Paris Club of official creditors could happen as early as next January. Russia is keen to obtain an investment grade rating from Standard and Poor’s, the only big agency still classifying Russian debt as sub-investment. A rapid settlement with the Club’s creditors would make an upgrade much more likely.
At a press briefing Kudrin said that the government could use $7 billion to $10 billion from a special stabilization fund to help repay debt early. He confirmed that talks with Paris Club creditors are continuing, but did not verify the news of an early deal.
Russia’s Paris Club debt hit the headlines earlier this year following a controversial deal involving its biggest creditor, Germany. In July, the West European nation repackaged and then sold E5 billion-worth of Paris Club debt owed to it by Russia. Although the move helped improve Germany’s fiscal accounts, it undermined Russia’s ability to manage its external debt. Russia is keen to avoid further similar transactions and its decision to repay Paris Club debt early will help in this respect.
Russia has experienced six years of stable economic growth, which is expected to continue at a pace of 6.6% in 2005. Kudrin expects foreign debt to fall below hard currency reserves for the first time, this year. “By cutting external debt, we increase the creditworthiness of the country and raise the sovereign ratings and that means that private companies also get a better rating, cutting their borrowing costs and making it easier for them to attract investment for their enterprises,” Kudrin said.