Tuesday, September 22, 2015

Sputnik — Russian Economy Needs to Lower Dependence on Oil Prices - Putin

Russia's economy needs to lower its dependence on oil prices, the country's President Vladimir Putin said Tuesday.
"It is necessary to ensure the balance and sustainability of public finances, significantly reduce the budget's dependence on oil prices, [financial] quotes," Putin said during a budget meeting.
The Russian leader assessed the economic situation as challenging but not critical and called on economic policymakers to preserve the role of the federal budget as the leading instrument of development.
"In the current circumstances it is particularly important to have a package of measures to overcome a recession in the economy," Putin addressed the heads of the Presidential Administration, Federation Council, State Duma, and ministers of the government's economic bloc.…
Also Russian leader stated that Russia's budget deficit must stand at under 3 percent of GDP in 2016….
Quickly perusing the Russian sectoral balances, a relatively low deficit is indeed indicated, given a persistent trade surplus (although shrinking somewhat) and relatively low private debt to GDP ratio. So Putin's figure is not way out of line here, it might appear.

It looks like Russia could do more stimulus without affecting inflation substantially, but it is being forced to ramp up military expenditure owing to present circumstances, which means it doesn't have discretion over the flow. However, nothing that could not be addressed by functional finance, it seems.

A Fitch senior analyst recently said that he would rate Russia investment grade were it not for the uncertainty of the current geopolitical situation. Russia has a strong balance sheet.

The major exposure is foreign debt held by Russian firms, about 500 billion US. But has Pepe Escobar observes, that is also a financial nuclear weapon, since Russian companies can just default if the government refuses to bail them out with foreign reserves, and it is under no obligations to do so. That would devastate the European economy, which holds much of the Russian private debt.


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