Page 7 - RusRPTJan23

RUB1.44 trillion ($22bn) for the ministry from a total planned borrowing of around RUB2.5 trillion for the whole year. Of this sum, 77% derives from bonds floating rates, which will ultimately be tied to Central Bank rates. The main buyers of these bonds were leading state-owned banks, which previously borrowed RUB1.39 trillion ($21bn) through REPO transactions. This mechanism is in effect the CBR printing money to cover the deficit.
This has obvious consequences: it will likely increase inflationary pressure, forcing the central bank to raise interest rates and sacrifice economic growth, although the CBR has kept rates on hold at 7.5% at the last few meetings of the year.
Just how inflationary this borrowing is remains a matter for debate. Economist Viktor Tunev calls these loans “Russian QE”: the CBR creates liquidity in the form of federal loan bonds, simultaneously improving standards in assets and enhancing money supplies to the banks’ liability without involving capital.
The quality of life in Russia slipped somewhat in 2022 but not by a large amount and not by enough to cause social unrest.
Unemployment levels in Russia remains close to historic lows even as foreign companies have left the market and factories have closed. The latest official figures show that 3.9% of the workforce was unemployed in October; the all-time low of 3.8% unemployment was set in August.
There are several possible explanations for this paradox. First, Russia’s labour market always responds to a crisis by cutting salaries first, not jobs. Second, the low level of benefit payments in Russia means that people who do lose their jobs are likely to grab any job they can as soon as possible.
On top of this, Russia launched its military mobilization amid this “compressed” labour market. The loss of approximately 1-1.5mn people from the labour market due to war-related mobilization and emigration will exacerbate the situation with a growing pool of unfilled vacancies.
This serves as a wake-up call that Russia’s labour resources are limited, says Alexander Isakov, an economist specializing in Russia and Central & Eastern Europe at Bloomberg Economics. Because there are no spare resources in the economy, mobilization requires those working in “productive” industries (such as processing, construction and transport) to be diverted into the state sector. All of this impedes potential economic growth: increased defence and public sector spending have structural side effects that will limit potential annual growth to about 0.5% over the coming five years, Isakov says.
Russia’s real estate market is currently experiencing a bubble due to cheap mortgages. The current program of discounted mortgages at a rate of 7% was due to end in Russia at the end of this year. Both the Central Bank
7 RUSSIA Country Report January 2023 www.intellinews.com