As regards the fiscal policy, the year 2009 and the year 2010 are expected to be rather difficult. With fixed expenditure of the federal budget remaining at the level determined in the draft federal budget in the year 2010 and planned for 2011 and 2012 and oil prices, within the range provided for in the scenario in question, the federal budget is likely to be in deficit in 2011 and 2012. As the Reserve Fund is only sufficient enough to cover the deficit of the federal budget till the end of the first half of 2010, the Ministry of Finance of Russia is expected to borrow actively both on the international capital market (in 2010) and the Russian capital market (throughout the entire period). Accordingly, in 2010 the above policy will permit to reduce somewhat capital flight from the Russian Federation. However, in any case a substantial pressure on interest rates is expected on the domestic market which situation holds back the demand by Russian private investors in borrowed ruble funds and, thus, slows down the renewal of the volume of investments in this country.
The forecasts stated herein regarding the level of prices on oil and metals are unlikely to ensure in the period under review a sustained current account surplus. Taking into consideration the forecast regarding changes in the capital flow balance, fast accumulation of international reserves by the Bank of Russia and respective issuing activity by it are not expected. If the budget deficit is financed on market terms it means that such a tough monetary policy is carried out as makes it possible to ensure a sustained reduction in the inflation rate to a singledigit value.
2. The scenario of rapid exit from the crisis. This scenario is partially similar to the “oil” scenario of the Ministry of Economic Development of Russia and is based on the idea of successful and fast implementation of crisis exit strategies in all the leading states. Under the scenario in question, in 2010 the global economic growth is expected to be at the level of at least RUSSIAN ECONOMY IN trends and outlooks 2.5% a year, while in the 2011-2012 period, at that of 3.5-4.5% a year. It means that the above indices will be close to the pre-crisis ones.
Such an explosive growth of the global economy is likely to trigger a new rise in prices on global commodity markets (both through expansion of the demand (in physical terms) and due to participants’ growing expectations). It is believed that in the scenario in question oil prices in 2010 may grow to 80 USD/barrel (Urals), while in the 2011–2012 period, to USD/barrel. By the end of 2012, prices on metals will go up by at least 15–30% on the mid 2009 level.
In such a situation, it is expected that (as in the first scenario provided that the fixed expenditure remains the same as in the federal budget passed by the law) the federal budget deficit will be observed only in the 2009-2010 period, while in the 2011–2012 period the federal budget is drawn up with a surplus again.
It is evident that the above scenario entails preservation of such main global structural problems, including those in the primary sector and financial sector as well as threats as existed before the crisis. However, it is believed that such threats (a new serious financial and economic crisis of the global economy) may only come true beyond the horizon of the period under review (after 2012).
Within the framework of the scenario in question, it is assumed that the existing global capital which is being withdrawn from low-income ‘reliable’ assets in developed countries will be more actively transferred (than in the case of the scenario of inertial exit from the crisis) to emerging markets, including Russia. As a result, as early as 2010 Russia may have a zero capital flight balance, while in the 2011–2012 period a double surplus of the balance of payments is likely to be observed again. Such a situation will result in nominal and actual appreciation of the ruble and slow reduction in the rate of inflation.
In our opinion, appreciation of the ruble, high nominal interest rates (because of the inflation rate) on loans in rubles as well as prevailing conservative expectations of Russian economic agents (in a situation where dependence on trends in the global market is becoming greater than before) do not permit to expect fast recovery of growth rates in the real sector to the pre-crisis level within the framework of the scenario in question. The main imbalances in the Russian economy which existed before the crisis will inhibit the rate of economic recovery despite high prices on hydrocarbon materials and other main Russian export commodities.
However, in the period under review accelerated growth in GDP will be observed both in the global economy in general and in Russia, in particular, while negative trends may arise only after the year 2012.
3. The scenario of delayed exit from the crisis (“the second wave” of the crisis). Within the framework of that scenario, a downbeat development of both the global economy and the Russian economy is considered. The scenario in question is based on the idea that either the second wave of the crisis may arise in the global economy or some developments may cause greater uncertainty in the world (that is, provoke a new crisis). Such factors include the following:
1. Such mistakes in realization of the crisis exit strategy as were made by economic authorities of developed countries, for instance, a premature sharp increase in base interest rates, governments’ inability to resist further build-up of the budget deficit and other;
2. Such hidden risks in the economy of the USA and Europe as may come into life: a further growth in the rate of unemployment, crisis in the commercial real property sector, new wave of writings-off by financial institutions of toxic assets and other;
Section Monetary and Budgetary Spheres 3. Ceasing of the effect produced by fiscal stimulus measures in the economy of China which factor in a situation of stagnating demand may result in a dramatic slowdown of the Chinese economy with eventual adverse social and political implications to follow.
Irrespective of the specific factors behind the protracted crisis, under the scenario in question it is believed that recession of the global economy will be observed in 2010 as well, while in 2012 economic growth amounts to maximum 1.5–2%.
As regards the Russian economy, it means the following:
- Prices on Russian main export commodities will go down. In 2010 and 2011, price on oil (Urals) will drop to 40 USD/barrel, while in 2012 it does not exceed 50 USD/barrel. Metal prices will be at the level which prevailed in winter 2008–2009, that is, 30% below the level of the second half of 2009. Accordingly, irrespective of the price factor there are no factors behind an increase in the Russian export in physical terms;
- Russia like other developing countries will be considered as a zone of higher risks for global financial players. Accordingly, in 2010 and 2011 a negative capital flight balance will be observed (to finance the deficit of its federal budget the Russian Federation as a sovereign borrower will experience borrowing limitations on the foreign market as well), while in 2012 a zero balance as regards that component of the balance of payments is quite possible.
- It is unlikely that the Government of Russia is able to finance in full the declared nominal volumes of expenditure at the expense of domestic and foreign market borrowings. Due to the above, the balance of payments and the monetary and fiscal balance can be supported only through depreciation of the ruble nominal exchange rate.
The forecast of the dynamics of macroeconomic and financial variables, as well as indices of the federal budget of the Russian Federation are based on the structural econometric model of the Russian economy developed at the Institute for the Economy in Transition.
Calculations by the Scenario It is to be noted that for the purpose of limitation of subjective interpretation of quality changes in the economy and behavior of economic agents (for instance, a dramatic change in expectations in a situation of a steep fall in oil prices, volatile nominal fluctuations of the exchange rate and other) and due to use of the academic economic and mathematical tools technique for quantitative estimation of the scenarios, such responsible and efficient behavior of economic agents as is impossible in practice is anticipated, that is, in each scenario such an equilibrium is received for those specific conditions of variables as is impossible in practice with the specified criteria set. It concerns, in particular, the scenario in which a fall in oil prices is anticipated.
The outputs of calculations of the main macroeconomic and financial indices for the above scenarios are shown in tables 42–44.
RUSSIAN ECONOMY IN trends and outlooks Table The scenario of inertial exit from the crisis 2007 2008 2009 2010 2011 Oil price (Urals, USD/barrel) 72.52 93.9 60.7 65 70 Real GDP growth rate, % 8.10 5.60 –7.90 4.30 3.00 3.Nominal GDP (billion rubles) 33103 41256 39016 44142 48604 GDP deflator, % 13.92 18.02 2.68 8.47 6.90 6.Nominal GDP (billion USD, at the average annual rate) 1295 1664 1232 1549 1736 Growth rates of fixed investment, % 21.10 9.90 –16.20 –4.50 3.10 3.Rates of growth in households’ real income, % 10.40 1.90 2.30 6.20 1.10 2.Rates of growth in real retail sales, % 15.20 13.50 –5.50 1.50 2.10 3.Federal budget revenues (% GDP) 23.50 22.48 18.80 17.00 16.50 16.Federal budget revenues (billion rubles) 7779 9276 7337 7504 8020 Federal budget expenditure (% GDP) 18.07 18.35 25.34 22.40 19.32 18.Federal budget expenditure (billion rubles) 5983 7571 9887 9887 9390 Surplus / deficit (–) of the federal budget (% GDP) 5.43 4.13 –6.54 –5.40 –2.82 –1.Balance of the Reserve Fund as of the year end (billion rubles) 4028 1831 0 0 Balance of the National Welfare Fund of the Russian Federation as 2584 2769 2736 2848 of the year end (billion rubles) Export (billion USD) 354 472 303.3 321 338 Import (billion USD) 225 293 192.7 235 264 Trade balance (billion USD) 129 179 111 85 73 Current account balance (billion USD) 102 47.5 42 30 Capital account balance (billion USD) 72.3 –138.8 –45.2 –15.0 0.0 30.Balance of payments (billion USD) 173 –45 –3.4 16.5 25.3 40.400 451.9 425.4 410.4 410.4 440.Private sector’ foreign debt (billion USD) Private foreign debt/GDP ratio, % 30.9 27.2 34.5 26.5 23.6 23.International reserves of the Central Bank of Russia (billion USD) 476 427 439.0 466 496 Change in the USD/Rb nominal exchange rate, % –5.93 –3.01 27.74 –10.04 –1.75 1.Nominal Rb/USD exchange rate (Rb/USD) 25.57 24.80 31.68 28.50 28.00 28.Euro/USD exchange rate (USD/Euro) 1.371 1.468 1.39 1.35 1.4 1.Nominal RUR/Euro exchange rate (Rb/Euro) 35.06 36.41 44.13 38.48 39.20 39.Bicurrency basket exchange rate (Rb) 29.84 30.02 37.28 32.99 33.04 33.Change in real effective ruble exchange rate, % 4.20 5.10 –5.60 8.92 3.74 2.Index of real effective ruble exchange rate (June 1998 = 100) 112.7 118.5 111.9 121.8 126.4 129.Interest rate on loans in rubles (% annually) 10.0 12.2 15.3 9.7 8.0 7.Growth rates of consumer price index, % 11.9 13.3 8.8 7.4 6.9 6.Wide monetary base (as of the year end (billion rubles) 5513 5579 6467 7406 8423 Growth rates of wide monetary base, % 33.74 1.19 15.93 14.51 13.74 13.М2 as of the year end (billion rubles) 13272 13493 15698 17989 20576 М2 growth rates, % 47.54 1.67 16.34 14.60 14.38 13.Money multiplier 2.41 2.55 2.43 2.43 2.44 2.Monetization of GDP (М2/GDP), % 40.1 32.7 40.2 40.8 42.3 43.Section Monetary and Budgetary Spheres Table The scenario of rapid exit from the crisis 2007 2008 2009 2010 2011 Oil price (Urals, USD/a barrel) 72.52 93.9 60.7 80 100 Real GDP growth rate, % 8.10 5.60 –7.90 5.50 4.20 3.Nominal GDP (billion rubles) 32987 41668 39016 45024 50434 GDP deflator, % 13.53 19.62 1.67 9.38 7.50 7.Nominal GDP (billion USD, at the average annual rate) 1290 1680 1232 1637 1889 Growth rates of fixed investment, % 21.10 9.80 –16.20 –1.30 5.50 6.Rates of growth in households’ real income, % 10.40 6.50 2.30 6.50 2.00 3.Rates of growth in real retail sales, % 15.20 11.00 –5.50 2.10 3.50 4.Federal budget revenues (% GDP) 23.58 22.26 18.80 17.70 17.00 16.Federal budget revenues (billion rubles) 7779 9276 7337 7969 8574 Federal budget expenditure (% GDP) 18.14 18.17 25.34 21.96 18.62 17.Federal budget expenditure (billion rubles) 5983 7571 9887 9887 9390 Surplus / deficit (–) of the federal budget (% GDP) 5.44 4.09 –6.54 –4.26 –1.62 –0.Balance of the Reserve Fund as of the year end (billion rubles) 4028 1831 0 0 Balance of the National Welfare Fund of the Russian Federation as of the 2584 2769 2703 2803 year end (billion rubles) Export (billion USD) 354 472 303.3 360 412 Import (billion USD) 225 293 192.7 253 299 Trade balance (billion USD) 129 179 111 107 114 Current account balance (billion USD) 102 47.5 63 71 Capital account balance (billion USD) 72.3 –138.8 –45.2 0.0 20.0 40.Balance of payments (billion USD) 173 –45 –3.4 53.1 85.7 61.400 451.9 425.4 425.4 445.4 485.Private sector’ foreign debt (billion USD) Private foreign debt/GDP ratio, % 31.0 26.9 34.5 26.0 23.6 22.International reserves of the Central Bank of Russia (billion USD) 476 427 439.0 502 593 Change in the USD/Rb nominal exchange rate, % –5.93 –3.01 27.74 –13.19 –2.91 –3.Nominal RUR/USD exchange rate (Rb/USD) 25.57 24.80 31.68 27.50 26.70 25.Euro/USD exchange rate (USD/Euro) 1.371 1.468 1.39 1.35 1.4 1.Nominal RUR/Euro exchange rate (Rb/Euro) 35.06 36.41 44.13 37.13 37.38 36.Bicurrency basket exchange rate (Rb) 29.84 30.02 37.28 31.83 31.51 30.Change in real effective ruble exchange rate, % 4.20 5.10 –5.60 12.92 5.52 7.Index of real effective ruble exchange rate (June 1998 = 100) 112.7 118.5 111.9 126.3 133.3 142.Interest rate on loans in rubles (% annually) 10.0 12.2 15.3 10.6 8.5 8.Growth rates of consumer price index, % 11.9 13.3 8.8 8.3 7.5 7.Wide monetary base (as of the year end (billion rubles) 5513 5579 6467 7919 9158 Growth rates of wide monetary base, % 33.74 1.19 15.93 22.45 15.64 17.М2 as of the year end (billion rubles) 13272 13493 15698 19234 22383 М2 growth rates, % 47.54 1.67 16.34 22.53 16.37 17.Money multiplier 2.41 2.55 2.43 2.43 2.44 2.Monetization of GDP (М2/GDP), % 40.2 32.4 40.2 42.7 44.4 47.
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