major macro economic indicators
|2018||2019||2020 (e)||2021 (f)|
|GDP growth (%)||2.5||1.3||-4.3||3.2|
|Inflation (yearly average, %)||2.9||4.5||3.6||3.5|
|Budget balance (% GDP)||2.1||0.4||-4.5||-3.3|
|Current account balance (% GDP)||6.5||3.4||1.0||2.1|
|Public debt (% GDP)||13.5||13.9||18.0||20.6|
(e): Estimate (f): Forecast
- Abundant natural resources (oil, gas and metals)
- Diversification efforts
- Floating of the rouble since November 2014
- Market size and skilled labour force
- Macroeconomic stability: strong public and external accounts that ensure resilience to external hazards
- Digitalisation and innovation capacity
- Dependence on hydrocarbon prices
- Declining demographics
- No trade agreements beyond the neighbourhood
- Dependence on foreign technology
- Weak infrastructure aggravated by the lack of investment
- Heavy social security contributions (30% of salaries) favouring informality
- U.S. and European sanctions hinder offshore field development and innovation
- Institutional and governance weaknesses (insolvency treatment, property rights, corruption)
In 2021, the Russian economic recovery will be relatively modest. The government refrained from introducing nationwide lockdown measures in order to protect the economy, which is partly the reason for Russia's comparatively mild recession in 2020. However, Russia has been hit hard by the COVID-19 pandemic and was the fourth most affected country globally in terms of cases as of early December 2020. The second wave of the pandemic hit Russia severely, with daily new cases outpacing the peak in April. Households benefited from fiscal stimulus with the programme of subsidised mortgages at an interest rate of 6.5%. Nevertheless, private consumption will not bring a substantial boost for the economy in 2021 due to falling real disposable income and a low savings rate. Indeed, real disposable income contracted by a record 8.4% year-on-year in Q2 2020 and unemployment increased to 6.1% (a nine-year high). These figures do not include Russia's large informal sector, which accounts for about 40% of total employment and with many workers not eligible even for the limited social benefits available. Moreover, the risk of new Western sanctions following the alleged poisoning of opposition politician Alexei Navalny resulted in a weakening of the rouble. The currency could again depreciate, especially if the oil market rebounds slower than expected. Investments will rebound in 2021, but their growth is likely to be weak because of uncertainty and SME’s lack of access to financing, despite lower interest rates (the policy rate has been slashed by 175 basis points to 4.25% in 2020). The government has also delayed its flagship USD 360 billion National Projects programme by four years to 2024. The programme was originally launched in 2018, but made only little progress and was delayed again in 2020 due to the COVID-19 crisis. It is dedicated to roads, education and health, and aims to increase growth potential and reduce poverty (14% of the population lives below the subsistence level and 65% is assisted). Although oil prices are expected to gradually increase in the course of 2021, investments in the energy sector will be weak.
Solid public finances despite the pandemic
The fiscal stimulus in response to the pandemic has been relatively modest (about 7% of GDP spent in 2020-2021, which includes guarantees and tax deferrals), despite ample fiscal space thanks to a budget surplus and low public debt figures recorded in 2019. Moreover, the government has also built-up liquid reserves that are worth over 7% of GDP since 2017 in the National Wealth Fund. The budget balance, which turned into deficit in 2020, will improve slightly this year. Revenue measures include higher corporate taxes in the oil industry, increased mineral extraction taxes on metals and chemicals, changes to a flat personal income tax, a tax on interests from bank deposits over RUB 1 million, as well as a hike in the excise tax on tobacco. The oil price remains crucial for the Russian budget, with the break-even price required to balance it set at USD 42.4 per barrel. The updated fiscal rule was introduced in 2018 and it reduced the break-even crude oil price, which was at USD 110 in 2013. Nonetheless, the economy’s dependence on the oil and gas sector remains high. It accounts for about a quarter of GDP, 63% of exports and 35% of federal revenue. Sanctions that restrict investment and the export of some technological equipment to Russia, as well as the gradual depletion of mature fields, will limit Russian oil production.
Changes in the government
Vladimir Putin, who has been in power for 17 years, began a new 6-year presidential term in May 2018. His popularity has been eroded by the pension reform. Weakened approval ratings led to the sudden resignation of the government, including the prime minister Dmitry Medvedev, in January 2020. Mikhail Mishustin, the former head of the federal tax service, became the new prime minister. In July 2020, a nationwide vote ratified constitutional reforms proposed by President Putin. It concerned promises of increased state support for citizens and, most importantly, an amendment allowing President Putin to run for the presidency again in 2024 and stay in power until 2036. Moreover, changes also include giving presidents lifetime immunity from prosecution. A second cabinet reshuffle, put forward by Prime Minister Mishustin and then approved by President Putin, was announced in November 2020.
Last updated: February 2021
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.