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economy expected to contract by 8%-15% this year funding the budget may become an issue next year.
Russia’s budget surplus for January-May 2022 amounted to RUB1.495 trillion, according to the preliminary estimate of the Ministry of Finance released in June. Data for May is classified. In April, a monthly budget deficit was recorded for the first time.
The volume of all revenues for the five months of this year reached RUB12.043 trillion (oil and gas revenues amounted to RUB5.658 trillion, and non-oil and gas was RUB6.385 trillion), reports the Bank of Finland institute for Emerging Economies (BOFIT). The volume of expenditures for January-May reached RUB10.5 trillion.
“Russia was an infrequent debt issuer on international markets anyway and the outstanding value of its FX bonds amounts to $37bn; comparable to Chile and the Philippines whose economies are 80% smaller,” says Peach.
However, Russian President Vladimir Putin has made it clear that he values Russia’s reputation on the international bond markets. When he first took office in 2000, then German Chancellor Gerhart Schroeder offered to restructure Russia’s London Club debt, but Putin refused, saying that a country of Russia’s significance should honour all its debt, and the London Club debt was paid off despite Russia’s dire financial standing at the time.
The pressure from the default on Russia’s ability to raise money on capital markets could take several years to bite as the Ministry of Finance can rely on domestic banks to buy OFZ for the meantime. During the worst turbulence at the end of last year after tensions with the west appeared the domestic banks stepped in and bought most of the OFZ issued by the Ministry and still have sufficient liquidity to continue doing this for the foreseeable future. Putin has been building Russia’s Fiscal Fortress for over a decade as bne IntelliNews reported over a year ago and it remains very robust.
The spill over to the rest of the world from Russia’s default should also be limited, says Capital Economics.
“A default is clearly a big deal for those investors that hold Russian Eurobonds (and are therefore due interest) as well as those that have taken out protection in the event of a default (the settlement process for CDS contracts could get messy). But only around half of Eurobonds are held by non-residents ($19bn) and the government will continue to service those debts in which ruble payment is allowed in the contract ($11bn in total by our estimates),” Peach adds.
55 RUSSIA Country Report October 2020 www.intellinews.com