In the past couple of years, Moscow reduced foriegn debt and saved money to fight any eventuality. But it will need much more to fight its economic woes.
Something very interesting happened last year - Russia’s net public debt went to zero for the first time since 2014. Basically what that meant was that Moscow had more money in its bank account than what it needed to pay its domestic and external debt.
The total state debt as of August 2019 was $248 billion or 15 percent of the GDP. The amount of cash the government had in deposits was $269 billion or 16.2 percent of the GDP.
Russia under President Vladimir Putin has pursued a policy of gradually cutting reliance on foriegn debt and setting aside some of its oil export revenue for a rainy day.
A couple of factors are behind this cautious fiscal approach. Russia faced western sanctions and its companies were cut off from international loans after it annexed the Crimea region from Ukraine in 2014.
Along with the steep drop in price of oil that started in the same year, it meant a radical rethinking of fiscal management to ward off any potential debt related problems.
For Putin, foreign debt has been a touchy subject for a long time. Soon after he first took over as president in 2000, he made it a priority to reduce the country's debt burden.
The financial crunch of the 1990s which wreaked economic havoc as the country struggled to pay off foreign debt has left many Russians with a bitter memory of that period.
So out went the International Monetary Fund (IMF) and Paris Club loans in a short period of time. Now Russia is one of the least indebted countries in the world - thanks to all the oil revenue.
In the last five years, Moscow has gradually built its gross national reserves, which now exceed its external debt. Such a prudent policy is now coming in handy as Russia, along with the rest of the world, faces the economic fallout from the coronavirus pandemic.
War chest comes in handy
Putin’s critics have long criticised the government for not spending enough money on the welfare of its people.
Every year, the financially conservative economic planners set aside excess revenue in a rainy day fund. They do that by pegging the country’s budget with the price of oil at around $40 per barrel. In February the price of oil was around $60 a barrel.
Over the years, Russia built a war chest of more than $550 billion. As it turns out, that fund is now helping it stave off a crisis as the price of oil and consequently government revenue have plunged.
Oil and gas play a major role in the Russian economy, accounting for half of its total export revenue and substantial government tax revenue. So the recent slump in energy prices, mainly a result of lockdowns, can badly impact its finances.
Even then Russia’s Finance Minister Anton Siluanov predicts that Russia can hold on for four years if the price of oil remains at around $30 a barrel by relying on funds it has accumulated for such an eventuality.
But while Russia’s strong finances might be an envy of many governments in the European Union, Putin has to worry about an economy, which was stagnant even before the pandemic hit.
The $1.7 trillion economy is expected to shrink by 6 percent this year, double the IMF estimates for the global economy.
Wages, which haven’t increased and policies such as the 2018 changes in pension rules, which increased the retirement age in a bid to curtail financial expenditure, have damaged Putin’s approval ratings.
The economic landscape is still dominated by large corporations such as Lukoil, at the cost of small and medium sized companies, which employ millions of people.