Page 6 - RusRPTMay20
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This month’s report carries the details of how the crisis has hurt the Russian economy, but as things have moved so fast in most of the sections the pain of the stop-shock has yet to turn up in the official statistics. The results highlight the tragedy of 2020 which will end up being another lost year when it was shaping up to be the year prosperity returned to the Russia story after nearly half a decade of misery.
All of the results involve large numbers but the liberal fraction in the Kremlin that are in charge of macroeconomic policy are battle hardened veterans of many crises and know what to do. They have acted quickly and decisively so far and the irony of the clash with the west is the Kremlin has put many tools in place already to deal with an external shock.
Briefly some of the details are include the RUB100bn ($1.34bn) a day that Russia’s economy is losing from the coronavirus lockdown restrictions.
The budget will go from surplus in 2019 to a 4.5-5% deficit this year. That will blow a RUB3 trillion hole in the budget, but if it stays at that level the NWF can cover that amount for at least three years.s
Growth will go from a modest 1.3% growth in 2019 to a contraction of 5-8% in the moderate scenario and could be as much as 10% in the extreme case, according to former Finance Minister and Audit Chamber head Alexei Kudrin.
In addition to its reserves the Russian government is likely to raise some RUB2 trillion ($27bn) from the domestic capital markets, but given Russia’s low sovereign debt position it can swallow that amount of debt easily and will be met with enthusiasm by international bond traders.
One of the issues that has not been resolved is the size of the stimulus package. The initial plan was for only a 1.3% of GDP package but over the various iterations in April that has grown to about 6.8% of GDP. However, it remains unclear what part of that is cash and what pledges and government guarantees. And even6.8% is modest, as some countries in Central and Eastern Europe (CEE) have committed up to 20% of GDP to restart their economies.
Going forward and the future depends on rapid action now. The Kremlin is sticking to form and being very cautious with its reserves, promising as little as it can and leaving companies to cope as best they can. Likewise the Central Bank of Russia (CBR) has made interventions on the FX markets but only to smooth out the fluctuations. It has not attempted to defend the currency and remains focused on preserving Russia reserves to fight the next fight as a strategic priority. The Kremlin’s nightmare is that it burns through its reserves and then the US use its moment of vulnerability to hit Russia with harsh sanctions.
6 RUSSIA Country Report May 2020 www.intellinews.com
