In the midst of the Trade War, many economies that are heavily involved with the US have suffered from more volatile markets. So much so, that the IMF downgraded the world’s forecasted growth as well as growth of most emerging economies - Russia included.
On a positive note, Russia’s Ministry of Finance published very favourable economic data last week. First being a strong RUB2.5 trillion federal budget surplus for the first nine months of 2018, overshooting the RUB2.2 trillion consensus. Opposite to popular belief, the outperformance was not caused by the high oil prices but rather thanks to 15% year-on-year (YoY) growth in non-oil revenue versus the annual plan of 10% YoY. This is a result of more efficient collection procedures, as well as strongly controlled 2% YoY expenditure growth, keeping to the lower range of the annual 2-5% growth guidance.
Given the current trend, supposedly the full-year surplus may remain at RUB2.5 trillion, exceeding the RUB2.0 trillion implied by the most recent revision in the macro assumptions incorporated into the official budget draft. As this is a result caused by an improvement in the non-oil balance, it also validates the recent Ministry of Finance's decision to cut the 2018 net local debt placement programme by RUB480 billion to RUB560 billion.
Russia also has another scope to reduce the massive RUB1.7 trillion net local debt using a placement programme scheduled for 2019. This will only take place if the actual rouble exchange rate next year turns out to be weaker than the RUB63.9/USD drafted into the budget.
As long as the budget rule is in place, the debt programme could be reduced as a result of rouble depreciation, higher-than-expected non-oil revenues or lower-than-expected expenditures. Should Russia ease the budget rule i.e. increase the cut-off oil price by $5 a barrel, then according to ING Group’s estimates, this would add an extra RUB650-700 billion of oil revenues available for spending. Therefore, the borrowing programme could be lowered by the latter amount. Given the worsening in market conditions, such a measure should not be ruled out.
Russia’s overall progress shows proof that its revenues do not solely depend on the country’s oil and in fact, led the IMF to re-evaluate their forecast and raise Russia’s GDP Growth forecast to 1.8 percent in 2019. Moreover, Russia’s entire economy has been based on worst case scenarios since 2014. As a matter of fact, the Central Bank’s Deputy Chairwoman Ksenia Yudaeva said that the Central Bank is considering all risk scenarios, including the price of oil to be reduced to $35 a barrel as well as more sanctions. Thus, given that their economic data resulted in their favour and the IMF improving their forecast, Russia remains in a strong position.
This article was issued by Maria Fenech, Investment Manager Support Officer at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.