Russians Should be Ready for Ruble Devaluation, Says Russian Economist

Russians Should be Ready for Ruble Devaluation, Says Russian Economist

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“However, at present, the problem is that the government has to somehow liquidate a serious budget deficit which might reach 5 trln rubles ($160.92 mln) by the end of the year,” said Ruslan Greenberg, an economist and scientific advisor at the Institute of Economics of the Russian Academy of Sciences. “As it seems to me, this gap in the budget is likely to be filled by devaluation of the national currency.”

Against the background of protests in Belarus that broke out after the presidential elections on August 9, 2020, a number of important Russian problems have gone out of sight to some extent, as the attention of federal and independent media, numerous experts and ordinary observers is fully attracted to Minsk, rallies and attempts to put them down. Meanwhile, the Russians should take their attention off the Belarusian rallies and make a careful examination of the current situation, as Russia and its people increasingly often hear predictions about grave economic problems that might appear in the near future.

For example, many experts have begun to prepare the Russians for the fact that in the most immediate future they might expect the ruble devaluation. Ruslan Greenberg, an economist and scientific advisor at the Institute of Economics of the Russian Academy of Sciences, was one of the last to give a similar warning. According to him, the ruble's sharp depreciation might be caused the federal budget deficit. Greenberg believes that by the end of 2020, the “hole” in Russia's budget, according to various forecasts, is likely to reach 3 to 5 trln rubles (from $40 mln till $67 mln) which might seriously hit the ruble.

“Since back in 1998 when the ruble by a factor of three the Russian authorities have made every effort to avoid failures of this kind,” said Greenberg. “However, at present, the problem is that the government has to somehow eliminate an impressive budget deficit which might reach 5 trln rubles ($160.92 mln) by the end of the year. As it seems to me, this gap in the budget is likely to be filled through devaluation of the national currency.”

At the moment, the ruble is already under pressure in the wake of U.S. sanctions, low oil prices, global recession, a decline in internal production triggered by the COVID-19 pandemic, an outflow of foreign investors, and so on. Chances are some of these factors might affect the ruble only briefly. However, there are also those ones that have a longer lasting effect. Anyway, the devaluation is likely to be primarily facilitated not by a number of external factors, but by attempts to offset the budget deficit at the expense of the ruble stability.

At the same time, according to Greenberg, this time there is no need to be afraid of triple devaluation of the ruble, as this scenario is highly unlikely because the reserves accumulated in the National Welfare Fund remain intact so far.

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