Analytical commentary

Non-residents, mainly from CIS countries, are embracing the ruble bond market

Since 2018, after relatively stable volumes of bonds in circulation, non-residents, which include sovereign governments, international financial institutions, and non-financial and financial institutions, have been gradually increasing their presence in the ruble bond market as borrowers (Fig. 1). Despite the fact that the presence of non-residents in the Russian debt market remains insignificant — RUB 119 bln1 (0.4% of the amount of outstanding debt when accounted for and 0.7% excluding OFZs) as of October 1, 2021), according to ACRA, it has growth potential.

1According to the Bank of Russia — RUB 119 bln; according to ACA — around RUB 173 bln. The difference in assessments is caused by a different approach to the classification of the ultimate credit risk of bonds issued in the ruble market by non-residents and their entities registered in the Russian Federation.

Figure 1. Volume of outstanding bonds of non-residents in the Russian market, RUB bln

Source: Bank of Russia

The Agency identifies three main reasons why non-residents from the CIS, especially Belarus, Kazakhstan and Uzbekistan, are interested in the ruble market. Firstly, Russia is one of the most important trade partners of these countries in terms of both imports and exports (Fig. 2). Foreign trade relations between these countries are rather stable, and other things being equal, this will continue in the future.

Figure 2. Russia’s share in foreign trade turnover, %

Source: national statistics agencies

Secondly, the increased interest on the part of non-residents in the ruble bond market is associated with the improvement (until recently) of the conditions for borrowing in the ruble market, including thanks to the Bank of Russia’s successful inflation targeting policy and, as a consequence, the trend of lowering the key rates by the regulator since 2015. This trend was reversed this year as the Bank of Russia has begun to hike the key rate, acting in line with the policy of the central banks of developing countries to prevent inflationary pressures that have arisen.

In its upd ated macroeconomic forecast for 2022–2025, ACRA expects average annual inflation in Russia to decline to 5.5–6.0% in 2022, and that the December-on-December indicator may stand at 4.0–4.5%, which is close to the target se t by the Bank of Russia. In connection with this, throughout most of 2022, the Bank of Russia’s monetary policy will be rather hawkish, however, in the second half of the year it may be rapidly eased, which would increase the attractiveness of the ruble market.

Finally, the appeal of the ruble market for non-residents from CIS countries is associated with the more stable exchange rates of national currencies against the Russian ruble in comparison with exchange rates against the US dollar, which is partly explained by the smaller difference between interest rates in the analyzed CIS countries and interest rates in Russia compared with the difference between rates in the CIS and the US, which reduces the effect of weakening currencies and, ultimately, their volatility (Fig. 3).

In addition, growth of ruble borrowings of non-residents is supported by the level of development and relatively large depth of the Russian capital market, the need to diversify sources of financing, and the common policy of the Eurasian region aimed at increasing the share of national currency settlements.

Figure 3. Change in CIS currency exchange rates from January 1, 2019 to December 16, 2021

Source: Refinitiv

Sovereign borrowings currently prevail in the structure of borrowing by non-residents. This can be expected since, on the one hand, sovereign governments are the largest borrowers in their jurisdictions, especially when governments are running their budgets in deficit. On the other hand, the best practice is the opening of the market by the sovereign in order to form benchmarks for the cost of borrowing for national companies, which, as a rule, helps to reduce the costs for the latter. In addition, the cost of borrowing by foreign states in Russian rubles makes it possible to assess their credit risk by comparing the cost of such borrowings with the yield on Russian government securities (OFZs) (Fig. 4).

Figure 4. Dynamics of the yield on five-year government bonds in Russian rubles

Source: Refinitiv

Table 1. Volume of ruble-denominated sovereign bonds issued by Kazakhstan and Belarus and average spreads to federal loan bonds





RUB bln



Spread, bps



RUB bln



Spread, bps



Source: Refinitiv

In the next three years, the volume of potential issues of ruble-denominated sovereign bonds of Belarus, Uzbekistan and Kazakhstan will increase, but to varying degrees.

Given the goals pursued by the governments of Belarus, Uzbekistan and Kazakhstan by issuing bonds in the Russian market, as well as the needs of their budgets, ACRA expects that the volumes of new ruble-denominated sovereign bonds issued by these countries will increase in 2022–2023, but growth will be uneven.

According to ACRA’s estimates, the largest volume of ruble-denominated sovereign bonds is expected from the Republic of Belarus, which is explained by the need to finance its budget deficit and service its sovereign debt, taking into account that the national capital market is almost absent in Belarus, and the western market is practically closed due to sanctions. In 2022–2023, the Belarusian government may borrow up to RUB 100 bln (USD 1.4 bln) in the Russian market. The country’s sovereign debt service needs are expected to be about USD 3.3 bln, and the deficit planned by the Ministry of Finance is about 2% of GDP (USD 1.4 bln). The total demand of the Belarusian budget is estimated at just over RUB 300 bln, given the average annual RUB/USD exchange rate of 72.1, as forecasted by ACRA for 2022.

In ACRA’s opinion, the actual volume of bond placements will primarily depend on the loan agreement with Russia. According to officials and the media, the loan volume is estimated at USD 3–3.5 bln. The volume of bond issues can also be adjusted by the liquidity cushion estimated by ACRA at 10% of GDP as of August 1, 2021, which is partially taken into account in the international reserves of Belarus.

In May 2021, Belarus announced a three-year RUB 100 bln Eurobond program but, until now, Belarus has not issued any bonds under this program. Currently, there are three outstanding issues for a total of RUB 20 bln, of which two issues for a total of RUB 10 bln are due in August 2022 and one issue for RUB 10 bln is due in May 2025.

As for the Republic of Kazakhstan, ACRA links its government’s need for ruble-denominated funding mainly with the need to maintain the yield curve and refinance ruble debt. According to our estimates, the total of Kazakhstan’s public debt service costs in 2022 will amount to 1.3% of GDP, or 5.6% of budget expenditures, of which debt service costs in the Russian currency will amount to only RUB 8.6 bln, or 4.7% of total public debt service costs.

In 2022, according to ACRA’s expectations, Kazakhstan’s budget deficit will be about 3.3% of GDP, which will be covered by tenge-denominated borrowings in the domestic market. The planned volume of external borrowings is insignificant: KZT 35.7 bln, or RUB 6.2 bln at the current exchange rate.

Currently, there are seven outstanding ruble-denominated sovereign bond issues of the Government of the Republic of Kazakhstan for a total of RUB 80 bln; the nearest due date (for RUB 20 bln) is in September 2023. The Bank of Russia authorized 14 issues of Kazakhstan sovereign bonds to be placed in the Russian market for a total of RUB 170 bln. Therefore, on the horizon of three years, Kazakhstan can issue bonds for up to RUB 90 bln.

Until now, the Republic of Uzbekistan has not placed any ruble-denominated sovereign bonds. However, in the Agency’s opinion, it is reasonable to expect that the Uzbek government will decide to use this tool. Its main goal will be to build a sovereign curve (benchmark) in Russian rubles to facilitate the entry of non-government issuers into the ruble market. The Agency believes that in order to create this benchmark, it is necessary to issue two or three bonds for RUB 10–20 bln. Therefore, the potential volume of bond issues over a three-year horizon is estimated at RUB 20–60 bln.

The Ministry of Finance of Uzbekistan is actively developing the capital market and expanding sources of funding; Uzbek companies, in turn, are entering global capital markets. Along with dollar-denominated Eurobonds, there is also a demand for the Russian ruble. On November 18, 2021, ACRA assigned, under the international rating scale and the national rating scale for the Russian Federation, credit ratings to the National Bank for Foreign Economic Activity of the Republic of Uzbekistan (BB, outlook Stable, and A-(RU), outlook Stable, respectively), as well as the expected credit rating, under the national scale for the Russian Federation, to its bond issue for RUB 10 bln (eA-(RU)), which is about to be listed on the Moscow Exchange. In total, the Bank of Russia authorized four bonds of the bank to be issued and publicly traded on the Russian market.

As for debt funding needed to cover budget deficits in Uzbekistan, according to the Agency’s estimates, the Uzbek government meets this need mainly through loans granted by international institutions.

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Zhannur Ashigali
Director, Project Manager for Central Asian Cooperation, Sovereign and Regional Ratings Group
+7 (495) 139 03 02
Mikhail Nikolaev
Director, Sovereign and Regional Ratings Group
+7 (495) 139 04 80, ext. 179
Ilona Dmitrieva
Managing Director - Head of the Sovereign Ratings and Macroeconomic Analysis Group
+7 (495) 139 04 80, ext. 124
Svetlana Panicheva
Head of External Communications
+7 (495) 139 04 80, ext. 169
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