Russian economy: overcoming difficulties fast (by Russian Ambassador to UK Alexander Yakovenko, special to RBTH)
For many prominent international observers it is obvious that despite tough challenges, including low energy prices, weak rouble and western sanctions, Russia’s economy has managed to overcome the worst, and started to stabilize, adapting to the new economic reality. As President Vladimir Putin highlighted during the recent annual Direct Line special TV broadcast: “It is clear that there is no collapse, we have survived the peak of the problems, and the fundamentals of the Russian economy have strengthened”.
Russia’s macro-economic state exceeded the expectations of some government experts and independent analysts. The foreign exchange market has calmed down and the economy is gradually adapting to a floating rouble exchange rate. Public debt is low. The federal budget deficit remains at an economically safe level and the unemployment rate stays within reasonable limits, meaning it is much lower than in other countries in comparable figures. The inflation rate is also expected to slow down in 2015-16. Despite difficulties, the government is fully meeting all of its social commitments. According to the Russian Federal Statistic Service, the country’s GDP dropped in first quarter of 2015 by no more than 1.9 per сent – well short of most predictions. Many international economists are now revising their forecasts of the GDP annual contraction figures from 4-4.5 to a narrower 3-3.5 per cent.
In order to tackle the challenges the Government has adopted and been implementing a $35 bn. anti-crisis plan, that includes 60 measures aimed at reversing Russia’s worsening economic situation, exacerbated by the ruble sharp depreciation in the second half of 2014.
The measures stipulated for 2015-2016 are designed to accelerate restructuring of the economy, stabilize strategic companies in the key sectors, balance the labor market, reduce inflation, moderate the consequences of consumer price increases for low-income families as well as secure sustainable growth and macroeconomic stability in the medium term. This Plan is definitely working well.
After losing almost half of its value in 2014, the Russian rouble has recovered already about 30 per cent. Its rally was spurred the Central Bank lowering interests rate, which brought investors back on to the Russian market. For instance, China is going to double its investments in Russia. There was a lot of speculation that Russia was running out of its reserves very quickly. To shatter this myth it would be right to mention that the Central Bank of Russia recently announced that it is going to begin regular operations to buy foreign currencies on the domestic market in order to replenish its international reserves. The scope of such operations is going to stay at $100-200 million per day. As President V.Putin said, the corporate sector paid its commitments of about $130 bn. last year. For this year the amount stands at $60 bn., of which most has already been paid. It is widely acknowledged that Russian financial authorities acted wisely and avoided measures like introduction of capital controls. As the “Financial Times” Moscow correspondent Kathrin Hille correctly put it, costs in local currency have fallen and therefore consumers are more inclined to buy Russian – a process known as import substitution. The Agriculture production is a government priority now, with the growth prediction of 1.4 per cent in 2015. It is not surprising that some economists now talk of “a renaissance” of Russian industry and agriculture, spurred by anti-crisis measures, brought forward by changes in external environment. As said, “Russians are slow to saddle but fast to ride”. It has to be noted, however, that some of the relief came as a result of reciprocal and indiscriminate effects of the external pressures we have to deal with.