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Slide 1 | December 2010 | Foreign Debt Growth Outlook
December 2010Anton Stroutchenevski, Senior Economist
Foreign Debt Growth Outlook
Slide 2 | December 2010 | Foreign Debt Growth Outlook
Russia faces mostly institutional constraints to borrow externally
Russia is still among the countries with quite low foreign debt/GDP.
However, capital flows are very volatile: in 1H08, Russia enjoyed a net capital inflow that rapidly turned into a net capital outflow in 2H08.
The potential for export growth acceleration is limited. Thus, there is a threat that the trade balance will start shrinking if oil prices stabilize.
Without institutional changes, the country will not be able to borrow externally.
Slide 3 | December 2010 | Foreign Debt Growth Outlook
0
3,000
6,000
9,000
12,000
15,000
Arm
enia
Aze
rbai
jan
Bela
rus
Esto
nia
Geo
rgia
Kaz
akhs
tan
Kyr
gyzs
tan
Latv
ia
Lith
uani
a
Mol
dova
Russ
ia
Tajik
ista
n
Turk
men
ista
n
Ukr
aine
Uzb
ekis
tan
1991 2009
GDP per capita in the former Soviet republicsin 1991 and 2009, $
Source: IMF
Slide 4 | December 2010 | Foreign Debt Growth Outlook
GDP per capita in the former Soviet republicsin 2009 and external borrowing
Estonia
LatviaLithuania
Russia
Kazakhstan
Ukraine
MoldovaKyrgyzstan
Armenia
TajikistanUzbekistan
GeorgiaTurkmenistan
Belarus
Azerbaijan
0
2
4
6
8
10
12
14
16
0% 20% 40% 60% 80% 100% 120% 140% 160%
External debt/ GDP
GD
P pe
r cap
ita, $
’00
0
Source: IMF, CIA, national banks
Slide 5 | December 2010 | Foreign Debt Growth Outlook
Foreign debt accumulation slowed after the crisis
Source: Central Bank, State Statistics Service, Troika estimates
0
100
200
300
400
500
600
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
0%
6%
12%
18%
24%
30%
36%
Public debt Private debt Private debt/GDP (rhs)
Slide 6 | December 2010 | Foreign Debt Growth Outlook
The Central Bank expects capital inflow to finance negative current account in long run, $ bln
Source: Central Bank
2011E 2012E 2013E
Oil price, $/bbl Urals 60 60 60Current account 14.4 -14.5 -39.4
Export of good and services 388.3 389.6 395.8Import of good and services -329.3 -359.2 -389.4Other -44.6 -44.9 -45.8
Capital account -13.0 2.0 7.0Government and monetary authorities 2.0 2.0 2.0Private sector -15.0 0.0 5.0
Changes in gross international reserves -1.4 12.5 32.4
2011E 2012E 2013E
Oil price, $/bbl Urals 75 78 79Current account 46.2 30.3 -5.7
Export of good and services 448.5 471.1 489.6Import of good and services -352.0 -390.3 -443.8Other -50.3 -50.5 -51.5
Capital account 12.0 17.0 22.0Government and monetary authorities 2.0 2.0 2.0Private sector 10.0 15.0 20.0
Changes in gross international reserves -58.2 -47.3 -16.3
2011E 2012E 2013E
Oil price, $/bbl Urals 90 95 95Current account 78.4 60.5 17.6
Export of good and services 495.8 535.9 561.1Import of good and services -364.1 -421.9 -488.8Other -53.3 -53.5 -54.7
Capital account 22.0 27.0 32.0Government and monetary authorities 2.0 2.0 2.0Private sector 20.0 25.0 30.0
Changes in gross international reserves -100.4 -87.5 -49.6
Source: Central Bank Source: Central Bank
Slide 7 | December 2010 | Foreign Debt Growth Outlook
Russia was attractive for investors only when macroeconomic risks were low and oil prices were growing
Source: Central Bank
-150
-100
-50
0
50
100
150
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E
$ bl
n
Current account
Capital flows
Changes in gross internationalreserves
Slide 8 | December 2010 | Foreign Debt Growth Outlook
After the crisis, economic growth decelerated…
Source: State Statistics Service
-12%
-8%
-4%
0%
4%
8%
12%
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
E
20
11
E
Slide 9 | December 2010 | Foreign Debt Growth Outlook
… external and internal balances deteriorated…
Source: Finance Ministry, Troika estimates
0
20
40
60
80
100
120
2003 2004 2005 2006 2007 2008 2009 2010E 2011E
$/bb
l Ura
ls
-10%
-5%
0%
5%
10%
15%
20%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
E
2011
E
Current account Federal budget balance
Current account and budget balance, % of GDP
Breakeven oil price for federal budget
Source: Finance Ministry, Troika estimates
Slide 10 | December 2010 | Foreign Debt Growth Outlook
… inflation accelerated…
Source: State Statistics Service
4%
6%
8%
10%
12%
14%
16%
2003 2004 2005 2006 2007 2008 2009 2010
0%
2%
4%
6%
8%
10%
J an Feb Mar Apr May J un J ul Aug Sep Oct Nov Dec
2009 2010
CPI, y-o-y CPI, YTD
Source: State Statistics Service
Slide 11 | December 2010 | Foreign Debt Growth Outlook
… and the ruble depreciated, despite high oil prices
Source: Central Bank
20
22
24
26
28
30
32
34
36
38
20 40 60 80 100 120 140
$/bbl Urals
R/$
29
31
33
35
37
39
41
01/2007 07/2007 01/2008 07/2008 01/2009 07/2009 01/2010 07/2010 01/2011
0%
5%
10%
15%
20%
25%
30%
RUB/EUR-USD 1 1d MIACR (rhs)
Source: Central Bank
Slide 12 | December 2010 | Foreign Debt Growth Outlook
Who will Russia compete with on capital markets?
Source: IMF
Current account deficits, 2009, $ bln
United States, 378
Spain, 81Italy, 67
Other, 168
Australia, 44
India, 36
Brazil, 24
United Kingdom, 24
Portugal, 23Iraq, 17
Turkey, 14
South Africa, 11
Greece, 37Canada, 38
France, 51
Slide 13 | December 2010 | Foreign Debt Growth Outlook
Source: IMF, World Economic Forum
The quality of Russia’s institutions is too low to compete for sufficient inflow
0
1
10
100
1,000
2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50
The quality of institutions
Bor
row
ing,
$ b
ln
Russia (3.22)
Total borrowing at $951 blnTotal borrowing at $14 bln
Slide 14 | December 2010 | Foreign Debt Growth Outlook
Source: Central Bank
Due to poor quality of domestic institutions, capital outflow remains sustainable
Changes in foreign assets of domestic economy
-40
-30
-20
-10
0
10
20
30
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
$ bl
n
Banks Population Non-financial sector
Slide 15 | December 2010 | Foreign Debt Growth Outlook
Conclusions
Without improvement in macroeconomic policy and the quality of its institutions, Russia will be hardly able to compete successfully on the capital markets and guarantee sustainable capital inflow.
Domestic capital outflow trends will remain an important measure of the country’s appeal to investors.
Slide 16 | December 2010 | Foreign Debt Growth Outlook
Slide 17 | December 2010 | Foreign Debt Growth Outlook
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