Page 6 - Eastern Europe Outlook 2020

of a weak increase in people's disposable income is top of the regulator’s list. From April 1 to October 1, 2019, this load increased by 0.4 pp to 8.9%, approaching the maximum value of 9.3% in 2014.
Demand for loans is growing due to lower interest rates and banks are attracting new borrowers who did not have loans as of January 1, 2019 (5.6mn people, or 21% of borrowers).
Although the situation is gradually improving ​—​ the annual growth rate of consumer loans decreased to 23.5% on October 1, 2019 (from a maximum of 25.3% on May 1, 2019), and the share of bad loans decreased to a minimum over the past five years ( as of October 1, 2019 ​—​ 8.1%). Thus, the share of unsecured consumer loans with debt overdue by more than 90 days decreased in the second and third quarters.
A negative impact on the economy would also result from a decrease in external demand for Russian exports, weak investment growth (in the third quarter, investments grew by only 0.8-0.9%), as well as temporary tightness of budget policy, the central bank said.
Judging by the financial market dynamics, Russian assets and national companies, and their capabilities, are attracting strong investor interest (for more see the Markets section).
However, it is important that interest in financial assets is transformed into investment in real assets, the creation of new production facilities and jobs, and efforts to carve out promising market niches, which is not happening yet.
The Duma approved the new conservative federal budget for 2020-22 ​in the third and final reading in December. Despite expected spending expansion, the government’s revenue and expenditure as a percentage of GDP are projected to fall: from 18.1% for revenue and 17.3% for spending in 2020 down to, respectively, 17.2% and 16.9% in 2022.
The government is still trying to balance growth with security so while spending will be increased the government is allergic to leverage. In a nod to the need to invest more the government has approved a potential deficit, but because of the security concerns this was limited to a mere 0.5% of GDP.
Formally, the government’s fiscal balance will remain in the black: the surplus will stand at 0.8% of GDP in 2020 and 0.2% in 2022. The stringent approach to spending – via continued implementation of the ‘fiscal rule’ – will remain unchanged, allowing the sovereign fund, the NWF, to expand from $167bn in late 2020 to $242bn by end-2022. The other concession that might be made to pursuing faster growth is the fiscal rule cap of $40 price of oil (all revenues over this level are sterilised) might be raised to $45.
Most of the extra spending will go into the national projects, which will account for 9.8% of gross federal expenditures in 2020,​ 10.8% in 2021 and 12.2% in 2022.
In 2020 the actual amount of funding in this area could top 14.7%, or RUB3 trillion, if the government puts to work all unspent money on these projects carried over from 2019. However, additional public funding on the economy from the sovereign fund will remain limited: the Duma approved the
6​ EASTERN EUROPE Outlook 2020​ ​ ​www.intellinews.com