Financial strength: why Moody's praised Russia's resilience to external shocks

Russia is less vulnerable to external economic shocks than most oil exporters. This conclusion was reached by experts of the international rating agency Moody's.

The key to the stability of the Russian economy, experts believe the high volume of accumulated reserves. According to the latest data from the Central Bank, to date, the amount of gold and foreign exchange reserves of the country has reached its highest level since mid-2008 and exceeded $ 581 billion.

“At the end of 2019, reserves covered 90% of the country's total external debt, while in the previous crisis of 2014, the indicator did not exceed 55%,” Moody's experts emphasize.

Moreover, analysts also note the positive impact of the budget rule, which has reduced the impact of oil prices on the economy. As a result, even against the backdrop of a collapse in commodity quotes, the budget deficit of Russia in 2020 will not exceed 1%, economists believe.

“The budget rule, which helps Russia reduce economic instability due to fluctuations in oil prices, has made it possible to maintain financial reserves. Moreover, now the funds of the National Welfare Fund (NWF) ... will be enough to cover any shortfall in income from the oil industry and maintain Russia's financial strength, ”the agency’s study said.

A similar position is maintained in the Ministry of Finance of the country. According to the agency, at the beginning of March the volume of liquid assets of the NWF exceeded 10.1 trillion rubles (9.2% of GDP). According to the Ministry of Finance, the available funds are sufficient to cover the shortfall in budget revenues from lowering oil prices to $ 25-30 per barrel over the next 6-10 years.

“Large-scale reserves create a basis that allows maintaining economic stability even at low oil prices. Against this background, in 2020 the Russian budget will face a slight deficit, but already in 2021 the revenues of the state treasury may again exceed costs, ”said Anton Pokatovich, chief analyst at BCS Premier, in an interview with RT.

In addition to accumulated reserves, the Central Bank's monetary policy protects the economy from external shocks, experts say. Recall that in 2014 the regulator switched to a floating exchange rate. Thus, today the dynamics of the ruble exchange rate is determined by the ratio of demand for foreign currency and its supply on the market

“The floating course acts as a built-in stabilizer, which allows you to smooth out losses from lower oil prices. So, the national currency rate is now under pressure due to the instability of energy prices, but still the rate has become less susceptible to external shocks. Therefore, we do not exclude the possibility that after a decrease in investor panic, the dollar exchange rate in the long term may return to the level of 71-75 rubles, ”Pokatovich added.

A positive factor for the Russian economy was the fact that the country's budget is less dependent on oil revenues than other hydrocarbon exporters. This point of view in an interview with RT was expressed by the analyst of FINAM Group Alexei Korenev.

“Unlike many other oil exporters, who have up to 70-80% of all budget revenues from oil, the share of energy resources in the Russian budget is about 40%. The forestry and woodworking industries, as well as metallurgy, make a serious contribution, ”the expert explained.

Debt loops

According to Moody's forecast, by the end of 2020, the price of Brent crude oil will average $ 40–45, and in 2021 it can grow to $ 50–55. However, even a possible increase in the cost of energy resources will not solve the budget problems of OPEC countries, experts are sure.

“We expect that most states exporting oil and gas will not be able to fully compensate for the drop in income, which will lead to an increase in their sovereign debt. So, now we are forecasting a growth in the public debt of Saudi Arabia above 30% of GDP, and Oman - over 70%, ”the agency’s report says.

As a result of falling energy prices, Saudi Arabia has already begun to cut its budget spending for 2020. This was previously stated by the Minister of Finance of the country Mohammed al-Jadaan. According to him, the authorities had to cut funding for some budget items by about $ 13.3 billion.

“The threshold of a deficit-free budget for Riyadh is $ 83 per barrel, so the situation is unfavorable for the country at current oil prices. At the same time, in an attempt to stabilize the situation, they began to provide discounts to customers in order to increase their market share. However, it is not the first time the Saudis have made such an attempt, but I do not think that it will succeed, ”Christopher Dembik, economist at Saxo Bank, noted earlier in an interview with RT.

In the current conditions, a solution to the economic problems of the kingdom could be a renegotiation of the OPEC + deal, says Alexey Kornenev. Otherwise, the increase in oil production by the largest exporting countries runs the risk of further collapsing the cost of raw materials.

“An increase in supply will lead to a drop in prices, so the Saudis will still face an increase in the budget deficit, which now amounts to 9.2% of GDP. As a result, with a prolonged price war, Saudi Arabia will suffer the most significant losses. If Russia, thanks to money reserves, can tolerate lower prices much longer and not enter into negotiations, then the same position is disastrous for the Saudis, ”the expert notes.

Moreover, the unstable situation in the oil market risks hitting the budgets of smaller exporters of raw materials in the Middle East. First of all, we are talking about Kuwait, Iraq and Bahrain, analysts say.

“In these countries, the budget is completely formed from oil revenues. In Kuwait and Bahrain, tourism and international trade are in their infancy and cannot, as in the neighboring UAE, serve as a tool for additional income. In Iraq, the situation is exacerbated by political instability, ”Korenev explained.