government debt is good or bad, as i have already mentioned, is a sham question to a certain extent. another sham question is a choice between the financial stability and economic growth. both the central bank and the ministry of finance are being quite often criticised for focusing monetary and fiscal policies respectively on the problem of financial stability to the detriment of economic growth. in actual fact, economic growth is impossible without financial stability. while a stable budget is the basis of financial stability. it is possible to stake money, including government one, at the microlevel, at the level of small specific projects. to take risks at the macrolevel means to endanger economic growth and social stability. bis central bankers ’ speeches an important question is how to finance the deficit : through reserves or through debt? strictly speaking, both options lead to growth in net debt ( net of reserves ) and consequently to debt burden accumulation. that is why this choice is also a sham one to a large extent. nevertheless, since the commodity market risks are high, we believe that today the priority should be given to debt financing and keeping reserves for more complicated scenarios, when the access to debt financing is even more difficult. moreover, no doubt that the available reserves serve as an insurance from the market point of view and make the access to debt financing somewhat easier. in conclusion i would like to say a few words about how to reach the path of strong economic growth amid tough monetary and fiscal policies and prudent build - up of government debt. the matter is the structure of budget expenditure, rather than its volume, and the use of structural reform potential. the external conditions push the economy towards structural changes and balanced structural reforms may accelerate this process and make it less painful. the emphasis should be put on those industries, which turned out to be competitive in the current situation without government support. only they could become an efficient engine of development amid new reality. as it often happens, the best way to help businesses in the current conditions is not to interfere. the deficit resources of government support should be concentrated on assistance to the most vulnerable population groups, as well as on the development of infrastructure and human capital. bis central bankers ’ speeches

term rates in the economy depend on inflation expectations and expectations with regard to government finance sustainability. the ‘ risk - free ’ is a key word describing the relationship between the financial system and the government debt. the latter may perform all these functions only if the state budget is balanced in the medium and long terms and the government may honour its obligations without resorting to defaults and the printing press. budget discipline impacts the central bank ’ s ability to function as an economic and financial stabiliser amid economic shocks. you may find a lot of examples in the russian and international history. the russian policy between the end of the 19th century and the start of the first world war serves as a model of how the balanced fiscal policy allowed the government to preserve national currency stability, refrain from increasing taxes, and stabilise debt in per cent of gdp at the levels acceptable to the market. at that time a sustainable economic growth persisted despite the lost war with japan and the revolutionary upheavals. ( vice versa, uncontrolled budget deficit growth and in effect the breakdown of government finance during the first world war led to an economic collapse and triggered the 1917 revolution. ) let ’ s turn to more contemporary examples. the development of the so - called emerging markets, i. e. the financial markets of developing countries, started following the state budgets ’ stabilisation and inflation reduction. market uncertainty about fiscal stability may cause shocks bis central bankers ’ speeches in the financial and fx markets. both the situation in brazil in recent months and the russian crisis of 1998 can serve as an example. moreover, market concerns over the consistency of the bank of russia ’ s policy and our adherence to announced goals, which we felt in 2014 and to a lesser extent in 2015, were also linked to the budget. all the theories of the ruble exchange rate pegged to a certain ruble price of oil originated from considerations of budget balance and concerns that the central bank would intentionally generate inflation to finance budget liabilities. that is the bank of russia was suspected of being ready to give up inflation targeting for the sake of budget replenishment. it took us many months to persuade the market of the opposite. does russia have a potential to build up government debt? yes, it does, in theory, since our country may boast one of the lowest levels of government debt. consequently, the development of the government debt market could be conducive to the development of the financial system as a whole. anyway i would