WHEN OIL GREW, RUSSIA GREW; WHEN OIL FELL, RUSSIA ENSURED UKRAINE FELL. IF DUBAI IS A CASE IN QUESTION, THEN THE FACT IS THAT RUSSIA AND UKRAINE TOGETHER HAVE THE POTENTIAL TO DEBILITATE THE COMPLETE GLOBAL ECONOMY. SAYS GYANENDRA KASHYAP
This brings us to the biggest paradox of national accounting in the world. If you were to add Ukraine’s 2009 public debt figures with its external debt figures, you’ll reach a cumulative debt figure of 129.3% of GDP. That means that today, Ukraine has borrowed more than what its annual national income is ($180 billion). Despite an almost 60% chance that Ukraine will default on all these kinds of debt, it is amazing that foreign investors still believe in investing in Ukraine, where FDI has increased from $7.8 billion in 2005 to $10.7 billion in 2008.
Comparatively, Putin’s Russia – although not as bad as Ukraine – is the 7th ranked nation across the world on the cumulative default probability ranking (they have a default probability of 13.6%, better than Dubai). From 2005 to 2009, Russia’s fiscal balance has deteriorated phenomenally. While in 2005, there was a fiscal surplus of 8.2%, in 2009, there is now a fiscal deficit of 8% – a 180 degrees turnaround. Although Russia had managed to control its debt service ratio since 2005 (when it was 24.2) and brought it down to 11.3 in 2008, the same is expected to be 18 in 2009, an extremely worrisome rise. To Putin’s credit, FDI investment has increased from $12.8 billion in 2005 to $70.32 billion in 2008. But the forecasts for 2009 are close to half of this figure. External debt that was 33.6% of GDP in 2005 is now expected to increase to 47.1% in 2009. Add public debt of 5.4% of GDP, and you start realising that 52.5% of Russia’s national income of $1671 billion is pure and simple debt. In absolute figures, approximately $840 billion – compare this to Ukraine’s overall debt of $232.2 billion. Russia’s inflation worries continue, with 13.3% being the average inflation in 2008, although the same is expected to come down to 12% in 2009.
Fitch Ratings writes to us that Russia’s foreign currency and local currency long term IDRs have now been downgraded. Russia’s foreign exchange reserves saw an outward flight of almost $200 billion from July 2008 to February 2009. And with almost $137 billion of private sector debt coming up for repayment, these reserves might see a further fall very soon. At one point this year, the Russian rouble had fallen by a killing 37% when compared to the highest it had previously achieved against the dollar. Russia’s real GDP growth this year has been forecasted by Fitch Ratings to be -7%. In fact, World Bank has presented a worse picture, and has said that Russia’s GDP growth has been -9.8% in the first quarter, -10.9% in the second quarter, -9.4% forecasted in the third quarter and -10% in the fourth quarter. Interestingly, population is continuously falling by around 750,000 per year. The UN forecasts that Russia’s population, from 142 million now would go down to just 100 million by 2050. Still, in all fairness, Russia will make it through these times.
This brings us to the biggest paradox of national accounting in the world. If you were to add Ukraine’s 2009 public debt figures with its external debt figures, you’ll reach a cumulative debt figure of 129.3% of GDP. That means that today, Ukraine has borrowed more than what its annual national income is ($180 billion). Despite an almost 60% chance that Ukraine will default on all these kinds of debt, it is amazing that foreign investors still believe in investing in Ukraine, where FDI has increased from $7.8 billion in 2005 to $10.7 billion in 2008.
Comparatively, Putin’s Russia – although not as bad as Ukraine – is the 7th ranked nation across the world on the cumulative default probability ranking (they have a default probability of 13.6%, better than Dubai). From 2005 to 2009, Russia’s fiscal balance has deteriorated phenomenally. While in 2005, there was a fiscal surplus of 8.2%, in 2009, there is now a fiscal deficit of 8% – a 180 degrees turnaround. Although Russia had managed to control its debt service ratio since 2005 (when it was 24.2) and brought it down to 11.3 in 2008, the same is expected to be 18 in 2009, an extremely worrisome rise. To Putin’s credit, FDI investment has increased from $12.8 billion in 2005 to $70.32 billion in 2008. But the forecasts for 2009 are close to half of this figure. External debt that was 33.6% of GDP in 2005 is now expected to increase to 47.1% in 2009. Add public debt of 5.4% of GDP, and you start realising that 52.5% of Russia’s national income of $1671 billion is pure and simple debt. In absolute figures, approximately $840 billion – compare this to Ukraine’s overall debt of $232.2 billion. Russia’s inflation worries continue, with 13.3% being the average inflation in 2008, although the same is expected to come down to 12% in 2009.
Fitch Ratings writes to us that Russia’s foreign currency and local currency long term IDRs have now been downgraded. Russia’s foreign exchange reserves saw an outward flight of almost $200 billion from July 2008 to February 2009. And with almost $137 billion of private sector debt coming up for repayment, these reserves might see a further fall very soon. At one point this year, the Russian rouble had fallen by a killing 37% when compared to the highest it had previously achieved against the dollar. Russia’s real GDP growth this year has been forecasted by Fitch Ratings to be -7%. In fact, World Bank has presented a worse picture, and has said that Russia’s GDP growth has been -9.8% in the first quarter, -10.9% in the second quarter, -9.4% forecasted in the third quarter and -10% in the fourth quarter. Interestingly, population is continuously falling by around 750,000 per year. The UN forecasts that Russia’s population, from 142 million now would go down to just 100 million by 2050. Still, in all fairness, Russia will make it through these times.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
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