Russia braced for fresh fiscal squeeze

Russia's annual budget shows that Moscow is finally facing up to the country’s mounting fiscal problems.

Russia's annual budget, currently passing through parliament, shows that the government is finally facing up to the country's "mounting fiscal problems", says Liza Ermolenko of Capital Economics.

As a result "a substantial fiscal squeeze is looming", with "public investment set to bear the brunt" of these cuts. Infrastructure spending could be cut by around 40% in real terms, although unsurprisingly the defence budget will continue to grow.

What's more, these cuts won't be the last that take place. While the government will use its external reserves to finance borrowing and repay debt, these "have already fallen sharply", so "fiscal policy will need to tighten further over the coming years". This will add "to the headwinds already facing Russia's economy".

The outlook won't necessarily be helped by the resurgence of the rouble, which has risen by 15% in April. True, this has "opened the way for the central bank to accelerate interest-rate cuts", says Bloomberg's Vladimir Kuznetsov.

Goldman Sachs is now forecasting that interest rates could fall by a further six percentage points this year, following three percentage points of reductions since January. But the stronger currency is "reducing the government's potential revenue from dollar-denominated oil exports". Overall, a tough year remains likely.

Recommended

The charts that matter: bond yields slip while bitcoin tops $60,000
Economy

The charts that matter: bond yields slip while bitcoin tops $60,000

Cryptocurrency bitcoin soared to over $60,000 this week, while government bond yields fell back. Here’s how that has affected the charts that matter m…
16 Oct 2021
Whistleblower allegations – where now for Facebook?
Tech stocks

Whistleblower allegations – where now for Facebook?

The social-media giant has come in for some fierce criticism following revelations from a former employee. Just how much damage has been done?
16 Oct 2021
When will supply chains sort themselves out and what might that mean for inflation?
Inflation

When will supply chains sort themselves out and what might that mean for inflation?

Right now, congestion in global supply chains is driving inflation higher. At some point, that will sort itself out. So will that mean an end to high …
15 Oct 2021
From an age of plenty to an age of shortage
Economy

From an age of plenty to an age of shortage

We have emerged from the pandemic into a world where supply can’t meet demand, driving prices up. Merryn Somerset Webb looks at what's going on.
15 Oct 2021

Most Popular

Inflation is still one of the biggest threats to your personal finances
Investment strategy

Inflation is still one of the biggest threats to your personal finances

Central bankers and economists insist inflation will be gone by next year. We're not so sure, says Merryn Somerset Webb. So if you haven’t started to …
1 Oct 2021
How to invest in SMRs – the future of green energy
Energy

How to invest in SMRs – the future of green energy

The UK’s electricity supply needs to be more robust for days when the wind doesn’t blow. We need nuclear power, says Dominic Frisby. And the future of…
6 Oct 2021
How to invest as we move to a hydrogen economy
Energy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021