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Current Financial Crisis Russia Debt Default Risk Lower than 1998

Interest-Rates / Credit Crisis 2009 Mar 31, 2009 - 03:01 AM GMT

By: Pravda

Interest-Rates The current economic crisis will be a lot harder than the financial collapse of 1998, a recent report from the World Bank said. WB experts believe that Russia will have to deal with severe problems as a result of the crisis. The economic growth in the country will decline considerably and the recovery will take a much longer time in comparison with the critical period of 1998, when Russia declared default.


As the crisis continues to spread to the real economy around the world, initial expectations that Russia and other countries will recover fast are no longer likely," the World Bank said in its latest Russian Economic Report.

The economic crisis of 1998 was a classic example of the budget and currency crisis. Russia's national currency collapsed, but the economy skyrocketed very soon with the help of export. In general, it was the crisis of the state sector. The economic shock of 2008, which started as the crisis of the private sector, was triggered with excessive borrowings, whereas the situation remained stable financially.

The World Bank believes that the unemployment level in Russia would grow to 12 percent against 6.3 percent in 2008. The level of poverty will reach 15.5 percent, which will be 2.8 percent higher than it was before the crisis.

The inflation rate in Russia will make up 11-13 percent. The growth of prices on imports and the weakening of the budget policy will be the major factors contributing to the growth of the inflation rate.

The WB forecasts a 4.5-percent decline of the Russian economy in 2009. The year 2010 will be characterized with the zero growth of the GDP. The home demand will drop considerably, whereas the general social and economic situation will aggravate too, WB specialists said in the report.

The deficit of the federal budget in 2010 will make up six percent of the GDP. The experts said that the government's forecast of the 7.4-percent of the federal budget deficit is quite real: the government will be able to fund the deficit with the help of the reserve fund.

WB specialists also said that Russia's insignificant foreign debt did not impose any restrictions for borrowing. In addition, Russia remains a solvent country that receives considerable income from oil and gas imports even under the crisis conditions.

As for the world economy , it is expected to suffer a 1.7-percent decline. The volume of world commerce is expected to decline by 6.1 percent, but the world GDP can grow by 2.3 percent in 2010.

Pravda.ru

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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