Moscow’s focused approach to supporting the Russian economy during the pandemic has helped it recover from the crisis faster than most industrialized countries, a deputy finance minister said.
Although the Kremlin’s Rbs4tn Covid-19 support program ($ 54.3 billion) accounted for just 4% of gross domestic product, less than a tenth of the aid provided by Germany, Italy and the United States, Russia estimates the contraction of its GDP. slowed from 8 percent year-on-year in the spring to 3.6 percent in the third quarter of 2020, which placed it in the top five of the G20 countries.
Russia received a stimulus ordered by President Vladimir Putin before the virus hit, of which Rs 1.75 billion was spent this year.
“It’s a myth that Russia’s anti-crisis package was small,” Vladimir Kolychev said in an interview with the Financial Times. “The economy doesn’t care how you paint your spending. The important thing is that it has increased. “
The country was able to recover quickly as targeted spending made it more effective in handling the coronavirus crisis, Kolychev added.
He said Russia had increased public spending by a total of 27% this year, a figure Moscow claims to be higher than any country in the EU.
“It is obvious that the Russian economy suffered less in the second quarter and recovered more quickly in the third quarter,” Kolychev said. “This is not just because of our supportive measures, but because the quarantine itself in Russia was structured differently from that in Europe.”
Russia has recorded more Covid-19 cases than all but three of the countries in the world, reaching a new daily record of 29,093 on Sunday.
Mr Putin, however, has chosen not to impose a nationwide lockdown in favor of delegating disparate measures to local authorities that have largely left Russian industry alone while shutting down the consumer sector almost entirely.
The stimulus package avoided exploiting Russia’s $ 167 billion savings cushion from its oil and gas wealth to make direct payments to businesses and citizens for tax exemptions and loan guarantees.
Elina Ribakova, deputy chief economist at the Institute of International Finance, said Russia’s “proactive budget support” in the aftermath of Covid-19 has been limited. “No wonder Russia was facing a triple shock in 2021 from Covid, oil and the risk of sanctions given the US elections.”
She said the country would have “one of the smallest contractions in the world due to the arithmetic of limiting lockdowns to keep economic damage under control.”
She added: “Unfortunately, it is not known whether in Russia the health system is capable of handling so many cases of Covid.”
Mr Kolychev said that Russia’s Rbs500bn in annual payments to families with children – one of the few direct support measures of the coronavirus package – helped consumer activity grow 3-5% in the second quarter and continue to increase by 1 to 2%.
Moscow has also passed several tax breaks for sectors such as small businesses and petrochemicals, including a 20-3% cut for IT companies.
Mr Kolychev claimed that Russia’s GDP contraction would have been negligible without the Opec + deal with oil producers who limited production during the first wave of the pandemic.
“European countries have not increased their spending so quickly. The United States, Canada and Australia may have done so, but their programs have clearly been put in place in a way that has not led to rapid growth in consumer spending. They’ve recovered, but there hasn’t been a consumer boom, ”he says.
“We wanted to use these temporary benefits to target growth where people had the most income problems. If you give everyone [money], including the rich, then the rich will hardly change their consumption habits.
Mr Kolychev defended Russia’s decision not to spend the $ 167 billion national wealth fund, diverted from excess oil and gas revenue, on economic stimulus payments, saying it should be saved for “To distribute income from natural resources equitably between generations over time” rather than being used as a way out of the crisis.
The finance ministry used part of the fund to cover budget deficits during the pandemic, but doubled its domestic borrowing from Rbs5tn rather than tapping its oil savings to boost spending.
Mr Kolychev said: “When there is a downturn, the private sector is careful about spending and doesn’t want to go into debt, and the financial sector doesn’t want to give debt to the private sector because it knows the risks of default could be quite high. This creates space for the state to borrow more without there being problems with the availability of debt financing for the private sector.
Russia last month raised € 2 billion in Eurobonds for the first time this year, taking advantage of favorable market conditions at a time when the Kremlin fears that the administration of US President-elect Joe Biden will increases sanctions against Moscow next year.
Mr Kolychev said the country had made plans to mitigate the impact of any future US sanctions that would prevent foreigners from holding Russian debt. These potential countermeasures include easing regulations for Russian borrowers and a possible pause in future issuance to ease pressure on the secondary market.
But even though foreigners hold more than a third of Russian ruble bonds, Kolychev said Moscow could replace them with local demand if necessary.
“Russia’s foreign holdings of sovereign debt have not grown much in terms of liquidity over the past two years,” he said. “It basically means that when it comes to debt, there isn’t as much dependence on foreign investors. Our national financial system can easily manage the level of existing borrowing. “
An earlier version of this article indicated that Russia’s foreign borrowing doubled at Rbs5tn. It was domestic borrowing that doubled and the situation was changed.