Ministry of Finance wants to revive people's faith in government securities

28 february 2017 | Ekho Moskvy

The federal loan bonds (OFZ) which the Ministry of Finance plans to issue in April will not suffer the same fate as the short-term bonds (GKO), Leonid Grigoriev, Chief Advisor to Head of the Analytical Center, is sure. "The probability of a second collapse of domestic government securities within the nearest 25 years is extremely low," the expert declared in an interview for the "Echo of Moscow" radio station.

Leonid Grigoryev
Leonid Grigoryev
Chief Adviser to Head of the Analytical Center

The Ministry of Finance wants to revive people's faith in government securities. Speaking about Soviet times, Mr. Grigoriev noted that back then huge amounts of short-term bonds were issued, but their amount was far less than the federal budget and the amount of household savings.

Government bonds are a common tool for financing budget deficit, Mr. Grigoriev explained. "Russia has not used this tool in recent years because we have had enough revenue from ultrahigh oil prices," the expert explained. "Currently the amounts that the Ministry of Finance plans to issue are most likely a kind of a trial run. It is an attempt to regain public trust in state securities and prove that the state will pay interest on them and their value will not plummet. The Ministry of Finance is trying to reintroduce into the market a budget deficit financing tool that exists everywhere in the world."

Mr. Grigoriev believes that since there are no long-term securities in the market, there are many potential buyers that would be interested in a long term instrument that offers good guarantees and who would thus be interested in investing in federal loan bonds at relatively low interest. At the same time, it will be possible to use government bonds as a tool for financing the construction of infrastructure facilities, the expert pointed out.

Source: Echo of Moscow

Photo: from open sources