Russia's state debt-servicing costs will rise by 23% in 2026

MOSCOW (Reuters) -Russia's debt-servicing costs will rise by 22.5% in 2026 from this year, reaching 8.8% of the total budget expenses, due to an increase in borrowing and high interest rates, Finance Ministry documents showed on Thursday.

The government approved a three-year draft budget on September 24 with a rise in the value-added tax in 2026 to boost revenues and an increase of the deficit estimate for 2025 to 2.6% of GDP from the previous 1.7%.

Russia's level of debt is expected to be low at 18.6% of GDP in 2026 and 19% in 2027, but the costs of debt servicing in total expenses are predicted to double in 2026 from 4.4% of total expenses in 2021, before the start of military operations in Ukraine.

The central bank's key interest rate is 17%, down from its peak level of 21% earlier this year, and the central bank expects the key rate to average at 12%-13% next year.

Finance Minister Anton Siluanov said on September 9 that Russia will borrow more than planned this year to cover the rising budget deficit. Yields on the government's five-year rouble bonds are around 14%.

High interest rates mean debt servicing takes up a comparable share of Russia's budget to that in countries with much higher debt burdens.

(Reporting by Darya Korsunskaya; Writing by Gleb Bryanski; editing by Barbara Lewis)

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