MOSCOW – Russia has improved its financial position and the ruble remains stable despite political turmoil. German media reports that the return of investor interest in the currency is because it successfully resists sanctions and oil price fluctuations.
This Wednesday, German magazine Focus published an article titled “After sanctions and oil price shocks: see why the ruble is coming back”, which examines the reasons behind investor interest in the Russian currency.
According to the report, after the currency devaluation, motivated by the imposition of the first sanctions and falling oil prices, the ruble strengthened against the dollar and the euro and became one of the strongest emerging market currencies in 2019.
The article also notes that not only the currency but also the Russian public debt securities are considered reliable by international investors.
The credit rating of Fitch rating agency for Russia is the same as China and India: BBB. Brazil remains quoted as BB-, its lowest rating since 2005.
Forbes magazine recalls that Moscow has shown strong fiscal discipline and tight spending control: its debt-to-GDP ratio is about 20 percent. For comparison, in 2018 France’s debt-to-GDP ratio was about 98% and that of the US about 106%.
In addition, Russia maintains one of the largest international reserves (gold and foreign exchange) in emerging markets, totaling $124.14 billion, equivalent to 7% of Russian GDP.
Swiss bank analysts UBS, in turn, characterize the Russian currency as “very interesting for investments” as the country has good macroeconomic indices: low inflation, balance of payments balance and accumulated gold reserves thanks to the sober policy Supervisor.
“Russia’s entire economic policy since the president is focused on keeping inflation low, securing a stable budget and increasing reserves,” said Oleg Kuzmin of Renaissance Capital investment bank.
It is a “very defensive” strategy towards the West that aims to help Russia survive future sanctions, said Timothy Ash of BlueBay Asset Management.
When the price of oil fell in 2014, the Russian government adopted a belt-tightening policy. By raising interest rates and cutting public spending, the government has caused demand to fall. From 2013 to 2016 its per capita GDP fell by 40% (in dollars). According to Kuzmin, thanks to the realism and speed with which this new policy was adopted, Russia’s response to the crisis was the best of all emerging economies in this decade.
Russia’s public deficit is now only 1.5% of GDP. Its debt is only 8.4% of GDP. This conservatism can persist for several years.