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The Ministry of Finance drafted this document in pursuance of the Federal Law On Amendments to the Budget Code and Certain Legislative Acts of the Russian Federation to Improve the Budget Process.
The draft resolution is aimed at implementing item 5.8 on normative legal regulation and monitoring of the regional and municipal debts in sub-programme 5 on the management of national debt and public financial assets of the Russian Federation of the state programme on management of public funds, endorsed by the Government’s directive No. 293-r of 4 March 2013.
Under the Budget Code of the Russian Federation, a region must have credit ratings from at least two international rating agencies, not to be below the level established by the Government, in order to make external borrowings (attract loans in foreign currency from foreign banks and place external bonds) and place its public securities, nominated in the national currency, on the international markets.
According to the Ministry of Finance, by the beginning of 2000 external debts of the regions reached $2.43 billion (1.4% of the GDP), which was considered a critical figure. During the moratorium (from 8 August 2000 to 1 January 2011) the accumulated external debt of the regions was reduced to $1.06 billion (0.1% of the GDP) and did not exceed $0.56 billion (0.03% of the GDP) as of 1 January 2013.
To limit the growth of external debt of the regions and compel them to make responsible borrowings, it is practical to set the highest possible requirements for their credit quality. In this context the resolution requires that to make external borrowings or borrowings by placing public securities in the Russian currency on international markets, the regions should receive credit ratings by at least two international rating agencies accredited by the authorised federal executive body. Their ratings should not be below similar ratings established by said agencies in accordance with the international scale of the Russian Federation.
The draft also makes amendments to Resolution No. 1238 of 1 December 2012 on the state registration of the terms for the issuance and circulation of regional and municipal public securities, amendments to the rules for the issuance and circulation of securities, and reports on conducted issuance.
At present only Moscow and St Petersburg, two cities of federal importance, have credit ratings at the aforementioned level.
Implementation of the draft resolution is aimed at letting only the most financially reliable regions enter the loan markets and minimising their potential failure to pay off debts.