The Ministry of Finance of Russia borrowed a trillion rubles from banks in one day to cover the budget deficit.

After a month-and-a-half pause, the Russian Ministry of Finance has returned to issuing government bonds to cover the budget deficit.The Ministry of Finance borrowed a trillion rubles from banks in one day to cover the budget deficit.

After a month-and-a-half pause, the Russian Ministry of Finance has returned to issuing government bonds to cover the budget deficit.

At an auction on Wednesday , the Federal Reserve sold a 1 trillion-ruble floater federal loan bond issue. The bonds, maturing in 2042, were sold in full, with demand exceeding the offering volume by 1.4 times—1.424 trillion rubles.

Apparently, the Ministry of Finance has reached an agreement with the banks, Vector Capital analysts write : it is large credit institutions, primarily state-owned, that purchase floaters, typically through pre-agreed deals. The Ministry of Finance turns to banks for assistance whenever the budget situation worsens: for example, last November, it borrowed 1.7 trillion rubles using floaters, and in December 2024, 2 trillion.

The Ministry of Finance is increasingly unsuccessful in selling regular OFZs. On July 20, it suspended government debt auctions after four consecutive placements ended in failure: two were cancelled, one was declared invalid, and the only successful one resulted in borrowing only 9 billion rubles, compared to the quarterly target of 1.5 trillion.

Now, in just one day, the Ministry of Finance has fulfilled two-thirds of its quarterly plan. However, by the end of the year, it may need approximately 3 trillion rubles of debt to cover the budget deficit, according to Raiffeisenbank analysts. As of early August, the federal treasury’s deficit had grown to 6.45 trillion rubles, and by the end of the year, it could reach 7 trillion, according to a forecast by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF).

In the past, such government bond placements for banks were successfully facilitated by the Central Bank, Raiffeisenbank writes: the regulator issued loans to credit institutions through repo transactions, accepting OFZs as collateral and retaining them on its balance sheet. This practice continues to expand: since the end of last year, the Central Bank has injected over 2 trillion rubles into the banking system, and the total debt of credit institutions to the regulator reached 6.16 trillion rubles as of September 2.

The Central Bank will likely become the true source of funding for the budget this time as well. “The new floater gives banks the opportunity <…> to use the paper as a liquid asset to attract funding from the Central Bank,” notes PSB analyst Dmitry Gritskevich.

When preparing the current year’s budget, the Ministry of Finance expected to reduce last year’s deficit by 1.5 times—from 5.7 to 3.7 trillion rubles—by raising VAT and taxes on small businesses. However, by the first quarter, the deficit had already exceeded the entire annual plan and, according to internal government calculations, could reach 9 trillion rubles by the end of the year, Bloomberg sources reported .

According to their data, since April the government has cut civilian budget expenditures by a third and also ordered a 15% reduction in the number of civil servants in government agencies.