major macro economic indicators
|2016||2017||2018 (e)||2019 (f)|
|GDP growth (%)||-0.2||1.5||1.6||1.4|
|Inflation (yearly average, %)||7.1||3.7||2.8||4.0|
|Budget balance (% GDP)||-3.4||-3.6||2.5||1.8|
|Current account balance (% GDP)||1.9||2.2||6.0||5.0|
|Public debt (% GDP)||16.0||15.0||15.0||15.0|
(e): Estimate. (f): Forecast.
- Abundant natural resources (oil, gas and metals)
- Floating of the ruble since November 2014
- Market size and skilled labour force (but shrinking population)
- Sound public and external accounts
- Efforts to clean up the banking sector
- Dependent on hydrocarbon prices
- No trade agreements beyond immediate neighbours
- Dependent on foreign technology
- Poor infrastructure and lack of investment
- Heavy social security contributions favouring informal economy
- US and European sanctions hindering offshore field development and innovation
- Institutional and governance weaknesses (insolvency treatment, property rights, corruption)
Russia has consolidated its recovery from the 2015/16 recession, yet growth seems timid when compared against the rise in hydrocarbon prices. However, the expansion reflects the country’s economic capacity and the authorities' desire to separate growth from oil and gas wealth. Household consumption (50% of GDP) will remain the key growth driver. Its rate of increase will be slow, echoing that of the economy. Households face a hike in the VAT rate from 18% to 20% on January 1, 2019. However, unless food and energy prices, or the ruble, go off track, inflation should remain under the control of the central bank, which had the key rate at 7.5% in early November 2018. With wage growth outpacing productivity growth, and in view of the inflationary expectations (4%), the central bank will proceed with caution. At the same time, pay rises in the public sector (28% of jobs) will be reined in, pensions will also get a smaller increase, while employment should increase slightly now that the retirement age has been pushed back by six months. Private investment, particularly foreign investment, will not be vibrant given the backdrop of sanctions and geopolitical tension. Given the size of the public sector (33% of GDP, 38% of reported value added with 32,500 companies), its investment is very important. In his May 2018 decree, President Vladimir Putin pledged to increase spending on infrastructure, health and education to 1.1% of GDP each year by 2021. Companies, both public and private, are strongly encouraged to participate. Non-oil exports – especially minerals, timber, grains and oilseeds, basic and intermediate industrial products and transport equipment – are expected to grow less than imports, maintaining a slightly negative trade contribution to growth. Crops are expected to be below average, while hydrocarbon sales could stagnate.
Surpluses on the back of hydrocarbon prices
The fiscal policy is set to remain restrictive. First, the 2017/19 three-year budget forecasts a one percentage point reduction in the non-oil deficit each year (9% of GDP in 2017). Dividends paid by state-owned companies will reach half of their profits, and excise duties on tobacco and alcohol will go up, as will the taxation of extractive activities at the expense of export taxation. Expenditure control will be complex because public pensions and salaries are indexed to inflation. Second, a fiscal rule, based on primary equilibrium (i.e. excluding debt interest) for a price of USD 40 per barrel of oil, applies from 2019 onwards. Given the dissatisfaction with the pension reform, this rule could be slightly relaxed by temporarily setting a higher reference price. This would allow the authorities to use part of the additional hydrocarbon-related revenue spent on foreign exchange to replenish the sovereign wealth fund (SWF, 7% of GDP at the end of 2018) and ease expenditure pressure. Public debt and its servicing are low, as the SWF was used during the recession. Its external share represents about 5% of GDP and tended to decline in the second half of 2018 with US threats on Russian public debt holdings.
The current account surplus is expected to remain significant in 2019. It is based on the large trade surplus (10% of GDP in 2018) linked to hydrocarbon exports (60% of total exports), which more than compensates for the services and income deficit (oil and gas engineering expenditure, Russian stays abroad, dividends from foreign companies, transfers from foreign workers). Excluding hydrocarbons, the trade and current account balances are negative at 5% and more than 9% of GDP respectively. Despite efforts made since the sanctions were imposed, the substitution of domestic products for imports has had little success, except in the agri-food sector. The financial account is negative at 2% of GDP, as the Russian private sector makes financial and real estate investments abroad and is deleveraging, while new foreign investment in Russia is low. However, funds are returning to Russia in the form of loans contracted abroad, often by those who have invested money there. For this reason, private external debt (27% of GDP) should be put into perspective, especially since growing foreign exchange reserves already represent 17 months of imports and more than five times short-term debt.
Political stability but an uneven business environment
Vladimir Putin, who has been in power for 17 years, began a new six-year presidential term in May 2018. Popular in the past for his annexation of Crimea, counter-sanctions, and strong international activism, he saw his popularity plummet following the adoption of the pension reform. Despite a satisfactory rating in the Doing Business and Global Competitiveness reports (scores of 77/100 and 66/100, respectively), institutional, regulatory, commercial and judicial performances (government interventionism, random contract enforcement, patronage) need to be improved.
Last update: February 2019
Bank transfers in Russia are among the most popular instruments used for non-cash payments, for both international and domestic transactions. This is because they are fast, secure, and supported by a developed banking network. Despite this, cash is still one of the most widespread payment instruments used by individuals.
The amicable phase begins with the creditor contacting the debtor, either via written correspondence or phone calls. If an agreement is reached, a payment plan can be offered to the debtor. Charging interest is legally allowed but hard to enforce unless an agreement to pay said interest currently exists between the debtor and the creditor. Any such agreement must be additional to any standing agreement between the parties.
The Russian judicial system is comprised of three branches: the regular court system, the arbitration court system (headed by the Supreme Court), and the Constitutional Court (a single body with no courts under it; in Russian constitutional law this function is known as “constitutional control” or “constitutional supervision”, and deals with a certain number of disputes where it has original jurisdiction).
The regular courts have a four-tier hierarchy and are responsible for civil and criminal cases: the Supreme Court of Russia, regional courts, district courts, and magistrate courts.
Arbitration courts review cases dealing with a wide matter of contractual issues, such as rights of ownership, contract changes, performance of obligations, loans, bank accounts and bankruptcy.
The highest court of appeal is the Supreme Court of the Russian Federation.
Russian law provides for simplified proceedings for certain types of cases, in which the creditor seeks to recover no more than RUB 500,000 from a legal entity or RUB 250,000 from an individual entrepreneur. Under Russian law, judges are to consider cases through simplified proceedings within a maximum of two months form the day when the Arbitrazh (arbitrage) court receives the statement of claim or application. Once the deadline for submissions of evidence has passed, cases are reviewed on their merits by judges, without the parties being called to appear.
Proceedings are initiated when a creditor files a statement of claim with the competent Arbitrazh court. The court must decide within five working days whether to accept the statement, and subsequently schedule a preliminary hearing. Debtors are usually notified of claims when they are served with a copy of the statement of claim, which includes the data of the initial hearing. There is no specific time frame during which defendants must submit their defense, but it must generally be done before the hearing on the merits). The court can set a deadline for submitting a statement of defense – if this is not submitted, the court will consider the case on the basis of the available materials. The preliminary preparation period ensures that the case can be resolved on its own merits during one court hearing. Cases must generally be resolved on their merits within three months after the respective statement of claim is received by the court. More complex commercial disputes can take considerably longer. The courts will normally award remedies in the form of compensatory damages or injunctions but punitive damages are not available.
Enforcement of a Legal Decision
A judgment is enforceable for three years provided that is has become final. If the debtor fails to satisfy the judgment, the creditor can request compulsory enforcement of the judgment from the court’s bailiff services. Foreign judgments must be recognized as a domestic decision by the Arbitrazh Court through the Russian exequatur procedure. Although Russia has signed a small number of reciprocal recognition and enforcement agreements with foreign countries, domestic courts are reluctant to recognize foreign jurisdiction clauses.
Commercial Courts initiate the supervision process to evaluate the debtor’s financial situation and to secure the debtor’s property. After examining a filed insolvency claim, the court initiates the supervision process. The debtor can autonomously request a court to initiate supervision if settling some creditors’ claims would make it impossible for the debtor to fulfil other obligations, if execution on the debtor’s property means the debtor’s business has to cease, or if the debtor’s business is insolvent. A receiver is appointed, known as a temporary manager, who must approve certain transactions during the supervision, such buying or selling more than five percent of the accounting value of the debtor’s property.
The aim is to carry out any necessary measures to restore debtors’ solvency and settle their debts. The court and the creditors control the process. The application must include a rehabilitation plan that ensures the debtor’s obligations will be met. The court appoints a receiver to be the administrative manager, who supervises and controls the debtor’s affairs during the period of the financial rehabilitation. The administrative manager examines the debt repayment schedule and monitors any financial restructuring plans.
At least one month before the period of financial rehabilitation expires, the debtor must provide the administrative manager with a report on the results of the financial rehabilitation. Once the report has been examined, the manager must prepare an opinion on the extent to which debts have been paid and the financial restructuring plan has been achieved. The opinion is submitted to the court, which examines the results and either ends the proceedings, orders external administrator to manage the company, or declares the debtor bankrupt.
The objective is to restore the debtor’s solvency by applying special measures under an external administration plan, and to replace the debtor’s chief executive officer (CEO) with an independent external manager. Once the procedure begins, the court appoints a receiver known as the external manager, who must draft an external administration plan setting out the measures necessary to restore the debtor’s solvency within the period of the external administration procedure. At the end of the period, the manager prepares and submits a report to the creditor’s meeting, together with a proposal of one of the following four options:
- end judicial proceedings, if all creditors have been settled;
- extend the period;
- end external administrator, as the debtor is now solvent;
- enter administration and file for bankruptcy.
Debtors and creditors may make an amicable arrangement to adjust debtors’ liabilities on negotiated terms during any rescue procedures. Generally, an amicable arrangement ends the powers of court-appointed receivers. If a debtor fails to comply with terms of an amicable arrangement, creditors are entitled to ask for a bailiff to execute the agreement.
The purpose of insolvency is to sell the debtor’s property and use the proceeds to pay creditors’ claim in proportionate amounts. The court may initiate the process during supervision, financial rehabilitation, or external administration. It appoints a receiver (insolvency manager) to replace the debtor’s CEO. The court and the creditors control the activity of the insolvency manager, who must provide progress reports. At the end of the proceedings, the court reviews the list of satisfied and unsatisfied claims. If they are fully satisfied, the court rules the proceedings complete and the debtor is liquidated. If they are not satisfied, proceedings are terminated, the debtor company is dissolved, and unsatisfied creditor’s claims are to be written off.