President Putin’s economic isolation doesn’t look so bad now

Russia’s Finance Ministry has been funnelling excess revenues from taxes on oil exports into a giant rainy-day fund

MOSCOW • Russian President Vladimir Putin has the US Treasury Department to thank for helping his country prepare for a global economic crisis.

A steady deluge of economic sanctions and the constant threat of more to come has pushed Russia’s authorities to boost reserves and strip back debt over the past five years. As governments across the globe prepare for what’s set to be the worst economic slump since 2008, the fortress approach that had been pushing Russia’s economy into stagnation is starting to look like good foresight.

S&P Global Ratings maintained Russia’s credit rating at BBB- with a stable outlook last Thursday, even as it downgraded a raft of emerging markets (EMs) due to a plunge in commodity prices.

To be sure, Russia’s dependence on commodity exports means it won’t escape a global recession. The budget is already being hammered by oil’s plunge to a 17-year low and the ruble is down 22% this year.

The economy could shrink by 5%-10% this year if a full lockdown is imposed, according to a worst-case scenario being discussed by the government.

Sanctions imposed by the US and European Union over Russia’s 2014 annexation of Crimea block many state-owned companies from raising debt abroad, while a measure taken by Washington last year prevents US investors from buying non-ruble government debt.

The penalties have left Russia with one of the lowest debt-to-GDP ratios in EMs. Finance Minister Anton Siluanov said last year that Russia has enough reserves to allow it to survive without borrowing for at least a year.

Meanwhile, the Finance Ministry has been funnelling excess revenues from taxes on oil exports into a giant rainy-day fund, making Russia’s international reserves the fourth biggest in the world. So far, Putin hasn’t shown much inclination to tap the funds as virus stimulus, announcing instead a plan to boost the budget through taxes on dividends and large bank deposits.

Russia’s continual crisis preparations have come at a cost to the economy, which has stagnated in the past five years. Before the coronavirus outbreak and slump in global oil prices, Putin had promised to boost living standards this year by bumping up spending. — Bloomberg