Russia has been quietly fiscally conservative, responsible and prudent since the devaluation of the 1990s. This has taken place under the dynamic duo of President Vladimir Putin and his trusty sidekick liberal economic expert Alexei Kudrin.
Most in the West don’t realize it but Russia has very little sovereign debt, and large ‘rainy day funds’ to protect the nation from ever experiencing again what happened at the end of the last century. We are not speaking to overall economic management here which leaves much to be desired due to the crushing of small business, but fiscal management.
Debt levels may be changing somewhat however, as Kudrin looks to increase borrowing this year to cover costs imposed by the Chinese coronavirus pandemic, rather than drain reserve funds.
The Audit Chamber [run by Kudrin] said the government would need to issue 4.1 trillion rubles ($56 billion) of government bonds to plug the shortfall in the state’s budget as a result of the coronavirus pandemic.
It predicted the deficit will hit around 5% of Russia’s GDP this year, as the sharp fall in oil prices, cut in oil production and economic recession cut tax revenues. In the first six months of the year, government income from oil and gas sales was down 55% compared to 2019 levels.
The borrowing will be the highest for the Russian Federation in 15 years. The pandemic’s fiscal impact will delay large infrastructure projects previously announced by the Kremlin.
The government borrowed 1.6 trillion rubles ($22 billion) in the first half of this year, the Audit Chamber said, to cover a budget deficit of 955 billion rubles ($13 billion). The deficit would have come in at more than twice that level were it not for an accounting maneuver as part of a deal which saw the Central Bank formally sell its ownership of state-owned lender Sberbank, ceding control to the government, added The Moscow Times.
The West could learn something from the East in this aspect of responsible financial management, as the American debt level approaches $30 trillion. At some point Washington will have to pay the piper.
No doubt America’s enemies are keenly aware of the possible consequences of this fiscal nightmare.
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