Page 5 - RusRPTJun20
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1.0 Executive summary
Russia’s economy is going to be badly hurt by the double whammy of the oil price shock and coronavirus lockdown and contracted a staggering 20% in real terms in the first quarter. But all said and done it is coping with this crisis better than expected and incomparably better than it coped with the last oil shock in 2014 that nearly lead to a meltdown.
The epidemic peaked in the middle May with more than 300,000 confirmed cases but a remarkably low death toll at under 2,000 souls, which lead to speculation that there is something wrong with the way deaths are counted.
The Kremlin is pushing for the economy to be restarted in mid-May but Russian President Vladimir Putin said the final decision will be left to the regional governors, who will elect to keep the lockdowns in place until the end May. Moscow mayor Sergey Sobyanin, who lead the country’s fight against the virus, had already announced Moscow will remain under lockdown until May 30 and as usual where Moscow leads the rest follow.
Bankruptcies are expected to be limited to the SMEs and the government has so far offered very modest been very modest bailout aid to the larger corporations. While most countries have put together a stimulus package of anywhere between 5% and 20% of GDP, so far the Kremlin has promised only 2.9% of aid and much of that is in the form of loans, deferred tax payments and guarantees.
But the Kremlin is not doing nothing to help. On 11 May, Putin announced a new set of anti-crisis measures, the 4th since the start of the epidemic. Unlike previous measures, this program has a pronounced social component and is aimed at providing significantly more aid to the most vulnerable groups of the population and business – families with children, social and medical workers, self-employed and individual entrepreneurs, and SMEs. In addition to a significant increase in childcare benefits, Putin announced tax incentives and the actual provision of irrevocable aid to companies for labour remuneration, provided that they do not reduce the workforce. Putin also announced the end of the non-working period in Russia. However, he left it with the governors to decide what measures will be taken and at what speed.
At the same time the banking sector is sound with plenty of liquidity. The Central Bank of Russia (CBR) doesn't intend to extend any special measure but has introduced a long-term dollar-denominated repo facility in case it is needed later.
The budget revenues will be hit, especially by the fall in oil prices, and Russia is expected to run as much as a 6% of GDP deficit this year of some RUB3 trillion, however, unlike 2014 the MinFin has some RUB9 trillion in the National Welfare Fund (NWF) to cover the shortfall and so can keep this up for at least three years.
Moreover, thanks to the $570bn in gross international reserves (GIR)
coupled with the zero public and external debt position, the Russian Ministry of Finance ruble-denominated OFZ treasury bills are en vogue, making it easy for the Ministry to raise additional funds to cover both the deficit and to add to a stimulus package.
5 RUSSIA Country Report June 2020 www.intellinews.com
