Page 14 - Eastern Europe Outlook 2020

In addition to oil Russia’s agro exports continue to grow, adding an expanding source of foreign exchange earnings. In 2018 Russia exported a record amount of grain from which it earned $20bn. In 2019 Russia enjoyed another good harvest and export earnings rose to $24bn. While it is impossible to predict the size of the harvest in any one year, the overall trend, thanks to ongoing heavy investment into this sector, is that grain export revenues will continue to rise over the medium term.
Russia is hoping to diversify away from its traditional raw material exports thanks to investment into technology and digitisation of the economy. While the virtual economy is flourishing it is more focused on retail and tapping the 146mn consumer market than producing new innovative technologies and so is unlikely to affect the balance of payments.
Russia's current account surplus in 3Q19 totalled $12.9bn, fully in line with the consensus forecast, and likely to stay at this level going forward, depending on the swings in oil prices.
However, the key positive development in 3Q19 was the improvement in non-oil exports, which showed 7% y/y growth in 3Q19 after a 2% y/y decline in 1H19. The positive financial effect from this was offset by a pick-up of merchandise imports to 4% y/y after a 3% y/y drop respectively, both due to higher industrial activity.
● Debt
Low growth and sanctions have prompted Russia’s private sector to
deleverage​ and significantly reduce its stock of external debt in 2019.
Russia is almost unique in that both its external and entire public debt are now
zero, covered by its reserves.
The debt stock of the private sector was $461bn in 2016, $448bn in 2017 and $400bn in 2018. The banking sector is set to continue to cut its net debt in 2019 as it was able to refinance only around two-thirds of its debt.
However, for the first time in many years non-financial enterprises were on course to refinance and borrow more than they repay. This will lead to a net rise in the external debt of the real sector of around $13bn in 2019.
Overall, the stock of private external debt is likely to be unchanged in 2019 from the year before. In the view of the Development Centre, the private debt stock may start to rise from 2020 as bank deleveraging slows, and non-financial companies continue to increase borrowing.
14​ EASTERN EUROPE Outlook 2020​ ​ ​www.intellinews.com