Category Archives: Russian Government deficit

3/8/15: IMF on Russian Economy: Debt Sustainability

In the previous post, I covered IMF latest analysis of Russian GDP growth. Here, another key theme from the IMF Article IV report on Russia: fiscal policy sustainability.

In its latest assessment of the Russian economy, IMF has reduced its forecast for General Government deficit for 2015, from -3.69% of GDP back in April 2015 to -3.3% of GDP in the latest report. However, in line with new Budgetary framework, the IMF revised its forecasts for 2016-2020 deficits to show poorer fiscal performance:

In line with worsening deficits from 2016 on, IMF is also projecting higher government debt (gross debt, inclusive of state guarantees):

Still, the IMF appears to be quite happy with the overall debt and fiscal sustainability over the short run and is taking a view that over the next 2-3 years, fiscal policy must provide some upside supports to investment.

One of the reasons for this is that IMF sees continued strong buffers on fiscal reserves side into 2020, with Gross international reserves of USD362.4 billion and 374.8 billion in 2015-2016 amounting to 13.6 months of imports and providing cover for 496% and 281% of short term debt, respectively.

Furthermore, IMF expects debt levels to remain benign, both in terms of Government debt and Private sector debt as the chart above shows.

Note: I will cover Private Sector Debt developments in a separate post, so stay tuned.


1) External debt situation remains positive and is improving in the sector with weaker performance (corporate sector):
Note: above figures do not net out debt written to Russian banks and corporates by their parent and subsidiary entities located outside Russia, as well as direct investment / equity -linked debt.

2) " sector shows maturity risk with short-term assets exceeding short-term debt in aggregate"

3) Fiscal stance appears to be expansionary, but moderate, with deficits below 4% of GDP forecast for the worst performance year of 2016.

4) "Exchange rate and liquidity risks are mitigated by the CBR's large reserve level"

Stay tuned for more analysis, including debt positions across various sectors.

27/3/15: Russia Goes for Fiscal Cuts: Amended Budget 2015

Russian Duma passed (in first reading) amendments to the Budget 2015.

The new Budget is based on average oil price of USD50 pb, with expected GDP growth of -3% against inflation of 12.2% and USD/RUB exchange rate of RUB61.5. These are major revisions to the base assumptions.

Forecast government deficit for 2015 has now widened from RUB431 billion (0.6% of GDP) estimated back in October 2014 to RUB2,700 billion or 3.7% of GDP.

Budget forecast that the economy will contract 3% (to RUB73.5 trillion or USD1.27 trillion) in 2015 is a sharp deterioration on October 2014 estimates for GDP growth of 1.2%. Still, this is very optimistic. Earlier BOFIT forecast Russian economy to contract by more than 4% in 2015 on foot of assumed oil price of USD55 pb, and the Central Bank of Russia estimated 4% drop in GDP for 2015 on foot of USD50-55 pb assumption. See latest forecasts for the Russian economy here and for external trade here:

In December 2014, budgetary forecasts were for GDP decline of 0.8% and inflation averaging 7.5% with oil at USD80 pb.

The key pressure will fall onto the Russian oil revenues reserves fund (one of the sovereign wealth funds) which currently has liquid assets of USD98 billion, but under the Budget 2015 amendments will see this depleted by USD53 billion by year end.

As expected (see my note linked above), public sector wages were not cut in nominal terms, but surprisingly (analysts expected nominal rises in wages below inflation rate), public sector wages were completely frozen in the amended budget. As expected, pensions rose in nominal terms (5.5% y/y), but the increases fell below expected inflation rate, so real pensions will fall.

In a related report (, Russia is to cut Interior Ministry (police) ranks by 110,000 with 78,700 cuts in 2015. This comes on top of cuts of 180,000 since 2011 - a part of large scale restricting of the police force that also included rebranding of Russian 'militzia' into 'police' and a score of measures aimed at reducing corruption. It is also worth noting that reductions are in line with May 12, 2014 Presidential decree that limits overall level of employment by the Interior Ministry to 1.1 million - at the time, this meant reductions of 180,000.

And reserves are still going to run low (

Despite the aggressive measures, in my opinion, Russia still needs some positive upside in the economy to meet the budgetary targets. My view is that even if oil prices reach an average of USD55-60 pb in 2015, the deficit is likely to be around 3.5-3.7%, so with Budget amendments penciling in USD50 pb price, things are very tight and prone to adverse risks. The good news - state sectors' wage inflation (running in 20% territory over recent years) will be scaled back via inflation and nominal freezes. Bad news is, this too is unlikely to be enough. 

22/1/2015: Some recent stats on Russian economy

Couple of recent stats for Russian economy:
  • Federal Budget Deficit for 2014 full year was 0.5% of GDP or RUB328 billion (ca USD 5 billion). Meanwhile, the Cabinet prepared a new Budgetary plan for dealing with the crisis which includes RUB 1.375 trillion (USD21 billion) worth of new measures. Amongst reported changes: RUB 250 billion worth of state banks recaps funds via the National Wealth Fund; RUB 86 billion of new subsidies for agriculture, industry and health, plus some regional tax breaks for SMEs.
  • As reported by the Russia Insider ( Russian banks dramatically increased bad loans provisions in 2014, up 42.2% y/y compared to 16.8% growth in 2013. Based on Sberbank estimates, if oil averaged USD40/pbl over 2015, Russian banks provisions will have to rise some USD46 billion. Meanwhile, banks profits run some 40% below 2013 levels. In 2012, Russian banks profits stood at RUB 1 trillion (USD15.3 billion), and in 2013 profits were RUB 994 billion (USD15.2 billion). In 2014 banks profits fell to RUB 589 billion (USD9 billion). Ugly numbers.
  • Rental values for Moscow apartments were all over the shop in Q4 2014: Economy Class average rental rate in Rubles rose 1.1% q/q despite reports of falling demand from the migrants, while Comfort Class average rentals were down 1% q/q. Business Class rental values were up 0.71% q/q, but Elite Class rentals were down massive 11.5% q/q. So mixed signals from the rental markets overall.