Russia frees itself of debt 14 years ahead of schedule

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Russia completed its dramatic journey from economic basket case to global oil superpower yesterday, paying off the last of its Soviet-era debt in one extravagant flourish.

In a move filled with deep symbolism, Moscow transferred $23.7bn (£12.5bn) to the so-called Paris Club of creditor nations that includes Britain.

The repayment came 14 years before a 2020 deadline and means Russia has paid back debts of more than $40bn in the last year alone. It comes almost exactly eight years after Russia defaulted on its sovereign debts and is being sold domestically as a coming of age for a country awash with oil revenues.

Last month President Vladimir Putin said his country's financial strength was a source of national pride. "We used to live with our hand held out," he said. "But now the Russian economy can not only repay debts but do so ahead of time."

When the Soviet Union collapsed in 1991 Russia inherited foreign debts mostly accumulated at the end of the Communist era that amounted to about $70bn.

In the 1990s, under the leadership of Boris Yeltsin, the country was forced to put out its hand for international financial help.

In 1999 its public debt as a percentage of gross domestic product stood at 96 per cent. But surging oil prices, a booming economy, stricter financial discipline and a gradual recovery from the Soviet collapse have filled the Kremlin's coffers with cash.

In the six years since Mr Putin became president hundreds of billions of dollars of oil revenues have poured in. The economy is apparently growing at a rate of six or seven per cent a year, its hard currency reserves are the third largest in the world, and next year Russia is forecast to enjoy a $56bn budget surplus.

Paying back its debts early was financially shrewd and the Russian Finance Ministry estimates that it saved $12bn in debt-servicing payments that it would have otherwise incurred between now and 2020.

In a research note the Deutsche UFG investment bank said Russia's credit rating would possibly be upgraded as a result. "(The) prepayment of external debt to the Paris Club is a milestone in Russia's modern economic history," it said.

"On the back of the payment Russia's public external debt is reduced to just five per cent of GDP, with the overall stock of public debt in Russia amounting to a meagre nine per cent of GDP."