Andrey Nechayev: «100 rubles per dollar is a feast for the Ministry of Finance and the trouble of the people»
Yekaterina Maximova
For which of the Russians the «arrangement» will be the hardest, whether the country is threatened by the «march of empty pots», how long the country's economy can «wallow in the swamp», what connection has appeared between Russian oil and pills, what will happen in 2025 and much more — in an interview with the first Minister of economy in the history of the new Russia, Doctor of Economics, Professor, leader of the Civil Initiative party Andrey Nechayev.
About the standard of living of Russians
— Andrey Alekseyevich, returning to your enchanting quote that sounded at the Finmarket forum: so can we settle down?
— It seems to me that this phrase, for all its indelicacy, generally reflects the situation. People are really adapting to the falling standard of living, and businesses are adapting to new conditions.
As I always say: those who used to eat parmesan have now switched to a cheese product. But we don't see the march of empty pots. And it's not just about the effectiveness of official propaganda. That's when the cheese product also disappears, then, probably, some serious shocks are possible.
— Yes, while everyone is full. But why has the quality of life of Russians not noticeably deteriorated in a year and a half of its and unprecedented sanctions? Shoppers have returned to shopping malls, and Chinese car sales are on record. Cafes are crowded, foreign tours are sold out … Or is it some kind of deceptive picture?
— I think that if you talk to the general public, you can hear a lot of alternative assessments. Even according to official Rosstat data, the standard of living of Russians has been stagnating since about the end of 2012.
With Rosstat, however, an interesting phenomenon: as soon as a new boss is appointed there, after that, real incomes grow a little. Such a funny slyness.
— But the key indicator — real disposable incomes of the population — is falling even according to Rosstat.
— Yes, last year there was a drop of 1%. It seems a little, but if we take from the end of 2012, the drop in real disposable income was, even according to official data, 15-20%.
According to the results of last year, Rosstat gave an official estimate of inflation according to the consumer price index — slightly less than 12%. And let's say the Central Bank, which orders a study of how households, that is, Russian families, estimate their own inflation, traditionally gives results about one and a half times higher than Rosstat.
Each family has different inflation depending on its consumer basket and its consumption structure. As I always joke in this case: vegetarians have little interest in the meat price index. So the last study of the Central Bank at the end of 2022 gave this estimate twice as high as the official inflation figures that Rosstat presented to us. That is, according to Rosstat, it was about 12,5% at that time, and according to the Russians themselves, 22-23%.
And, for example, the Romir research holding conducts an assessment of inflation using the average check method. And in the fall of 2022, so that you understand the scale of the data discrepancy, their estimate of inflation was 43%. Actually, everyone can calculate their own family inflation and find out how much poorer they have become. Maybe someone has become richer, who, for example, is now receiving large defense orders.
But I don't think people are absolutely happy in terms of their standard of living.
— And which group of Russians will be the most difficult to settle in?
— As you rightly noted, after Western foreign cars stopped being produced in Russia due to the lack of components, people began to buy Chinese cars with the «Moskvich» sign at the same prices. We will keep silent about the difference in quality.
I said this even when I spoke to the EU ambassadors that the middle class suffered most of all, of course, from this whole situation, from the sanctions war. Those who used international cards, who flew to Europe, and flights were canceled, who rested abroad. Who invested in foreign currency securities. And these are not units, we have more than a couple million such investors. This is just the middle class. And then their securities were frozen in European depositories. I'm not talking about oligarchs, but about the middle class.
And, by the way, I explained to these citizens, the ambassadors, that the ideologists of sanctions are stupid people. Did they naively believe that the middle class would storm the Kremlin? No, but he will harbor some rudeness towards you, Europeans, to use Zoshchenko's words. Putin's electorate suffered the least from such sanctions.
Thank you, I got married successfully
— How significant is a group of people for all-Russian statistics, whose incomes, on the contrary, have sharply increased because of their own. Are these payments to contract workers, mobilized, and salary increases to defense industry workers who are now working in three shifts?
— This group also, of course, improves statistics. And then, we see reports on television, how women who have lost their husband, son or father say: «Many thanks to the state, they gave a car.» Here we have such a grateful people after all. I'm not sure what all the opinions show, but some really say: «Thank you very much, I got married successfully.»
About the dollar, the budget and devaluation
— Let's say the year 2024 has come. Its going on, the Ministry of Finance is somehow spinning, saving the budget, the people are adapting. To what extent will the country's economy still have enough margin of safety accumulated from previous years?
— In fairness, I must say that thanks to the remnants of the market economy that our government once built in Russia (well, or its foundations were laid, let's say), the effect of sanctions, of course, turned out to be much less than experts initially expected. This is actively exploited by propaganda, regularly saying that we were predicted to fall in GDP by 8-10%, but it was only 1,9%.
Nevertheless, this is a fall when there was post-pandemic recovery growth all over the world. Yes, not 8%, but 2%, but a drop.
I think that we will continue to wallow in the swamp, rejoicing at the growth of 1,5%, not indignant, but upset at the fall of 1,5%. There will be a situation of sluggish stagnation.
— Now the Central Bank has «released» the ruble, the dollar is already 90, which will additionally bring about 4 trillion rubles to the scarce state treasury. And how much have Russians become poorer because of such a devaluation?
— Such a dollar exchange rate is a feast for the Ministry of Finance. Budget revenues related to export duties and import VAT are growing. In general, all incomes that are somehow tied to the dollar exchange rate are growing, although the estimate is 4 trillion rubles. it seems overpriced to me. But on the other hand, which is also obvious, it gives an additional boost to inflation.
Although imports have generally declined now, but they are recovering actively, which, by the way, is one of the reasons that the ruble is weakening, its share in many sectors of the consumer market remains quite high.
The problem is something else, and I have been talking about this for many years: when you have a competitive environment, domestic manufacturers occupy the niche that is being vacated due to the fact that imported goods are becoming more expensive. And if your competition is greatly weakened (which, unfortunately, has been happening in our country in recent years), then they simply raise their prices following the prices of imported goods, referring to imported components, imported raw materials, or simply not referring to anything. And as a result, the inflationary effect of devaluation turns out to be higher than one would expect based on, in fact, the size of the devaluation and the share of imports in consumption.
The budget is bursting at the seams, the national debt is growing
— According to various estimates, the state budget deficit by the end of the year will amount to 5-7 trillion rubles. How critical is this for a country that started last year with a budget surplus?
— We take the latest data from the Ministry of Finance as of June 27. The deficit is approximately 3.9 trillion rubles. At the end of May, there were 3.4 trillion. In fairness, it should be noted that the pace of deficit formation is decreasing. But, that's right, the dynamics allows us to predict that the deficit will really amount to 5-7 trillion.
If we compare it with the gross domestic product, then this is not a disaster. Some countries could envy us, including European ones. For example, Greece, Italy and Spain, where the deficit is much higher. The deficit will be somewhere 3.5 — 4, up to 5% of GDP. On the ruins of the Soviet economy in the early 90s, the deficit was about 33% of GDP. That was really a disaster.
But the problem is that now the sources of financing the budget deficit have shrunk. The Western capital market has completely closed due to sanctions. There is a pot in the form of a National Welfare Fund, but how much is real in it? We still haven't received an answer to the question of how much money is frozen in Western banks as part of the sanctions. There are different estimates, but neither the Ministry of Finance nor Western banks gave us any final figure.
It is estimated that approximately 300 billion dollars of sovereign assets have been frozen. In addition to the money of oligarchs and ordinary peasants. Accordingly, it is possible to climb into the cup, and occasionally the Ministry of Finance climbs there by about a trillion. Part of the NWF funds is also invested in long—term infrastructure projects, and the prospects for their return in general, and a speedy return, are even more problematic.
Experts believe that the liquid part is 6-7 trillion rubles. If the estimates of the annual deficit are correct, then the pot is enough for a year.
— Accordingly that means that only loans remain?
— Yes, the national debt is growing sharply. But only the domestic market remains for loans. And borrowing itself is becoming more and more expensive. Here is the last placement of OFZ was at about 10,2% per annum. For recent years, this is an unprecedented yield.
Accordingly, the national debt is increasing, the costs of its maintenance are increasing.
It is estimated that in 2025, debt servicing costs will amount to more than 6% of the federal budget of the country.
There is a second point. When such a relatively reliable borrower as the state enters the market, then private business has to make room, and so do state-owned companies. Last year, by the way, we had a pause for several months when there was not a single placement of securities of companies. Then, however, at the end of the year they caught up, but nevertheless. Well… To make room means to refuse to place or pay increased interest for the placement of their securities.
The stock market ceases to be a source of long money for investments (which it has been in recent years, thank God). Accordingly, the burden on public investment increases, that is, the burden on the budget increases. Further, the borrowing burden increases. And so we begin to walk in this vicious circle. And over the past year we have been walking on it more and more actively.
About taxes: yesterday, today, tomorrow
— The breadwinner-neftegaz has already been taxed with increased taxes. When will the Ministry of Finance come for people's money? In what form can it be?
— So far, there seems to have been no encroachments, because even before these events, taxation of the population has really increased in recent years. For example, the property tax began to be taken from the cadastral value, which is significantly higher.
Plus, some time ago, a progressive personal income tax was introduced, when they take not 13%, but 15% from an income of more than 5 million.
I do not think that before the presidential election they will decide on any serious tax innovations in part of the population. For now, they will make do with creative solutions with business.
The same tax on excess profits. At first it was an attempt at voluntary withdrawal, and then a transfer to the legislative channel. The Ministry of Finance has collected about 300 billion rubles as this excess income tax.
— Plus the current devaluation in the same piggy bank?
— Well, yes, as well.
About the revenue of exporters stuck in India
— Sanctions have earned and the revenue of commodity exporters is noticeably decreasing. Novye Izvestia has repeatedly written that everything else is also in India has huge sums stuck in non—convertible rupees — revenue for the one sold to Indians (and even at a discount!) Russian oil. In 1993, you were engaged in the «Indian debt» in the government. What does the current situation mean: sold = donated?
— Yes, it was a Soviet debt that we reissued for Russia. Then we agreed that the debt would be repaid by the supply of Indian goods to the Russian Federation. And 30 years ago, there were large teams of experts-foreign traders who were looking for what to buy in India on account of this debt.
The situation is certainly better now than it was 30 years ago: the Indian economy is more developed.
-So now you can buy not only terry towels and incense?
— Yes, the range, thank God, is wider. India is one of the leaders in the production of medicinal substances, which is very important in the conditions of sanctions and the refusal of Western companies to supply many medicines to the Russian Federation. And in the production of complex medicines, 94% of our products are imported substances. We made the pills ourselves, but the medicinal substances were imported.
The Indians also have good IT products, light industry products that the Soviet Union actively imported. I remember walking around in Indian shirts myself. Well, so, apparently, we will have to repeat this experience again.
The Ministry of Finance is likely to become an intermediary. He will buy rupees from exporters and sell them to importers. Something like this: The Ministry of Finance paid rubles to Rosneft against rupees, took taxes from them, and then sold these rupees to an importing company.
— And will oil and gas, which gives the country's budget almost 40% of direct revenues, cope at all?
— Oil exporters have really managed to switch flows to China, India and a number of other Asian countries, and for gas we have just an absolute drop in physical export volumes.
If oil can be transported by tankers and tanks, then gas… It's not like a child's constructor to pipe from the Nord Stream and onto China is shifted with a slight movement of the hand. Now the volume of gas supplies for export to Europe is about the same as it was at the end of the USSR, that is, they have sharply decreased. Recently, export prices for gas have also been falling. Therefore, foreign exchange earnings from exports are also reduced due to this factor.
As for oil, it is still sold at a discount to the world price. Now, however, it has decreased a little, but it was about $ 30. At the moment, the average Urals price is $ 55 per barrel. Despite the fact that North Sea oil costs $ 75, that is, a discount of about $ 20. Plus, buyers pay for this oil partly in rupees, which, of course, cause some trouble to exporters.
And in terms of taxation of the oil and gas sector, the Ministry of Finance has shown high creativity, which is connected precisely with the discount to the price of oil. The government has set a fixed discount: from July it should be just $20 — regardless of the price at which the exporter actually sells oil. Accordingly, oil companies bear direct losses on this, well, except for those who suddenly sell at a lower discount.
— What would you say to those Russians who believe that the current situation is with us for a long time, and there is no way out. For the future of many, many years.
«I'm afraid I can't comfort them, and that they're right in their own way. If we talk about the Ukrainian conflict, to be honest, I don't see any prerequisites for its completion yet. Neither side is ready for concessions.
Only if the West gets tired of this whole story. Or the Ukrainian economy will be completely crushed, which will force Kiev to make more serious concessions. In general, I think the conflict will last long enough.
But even if we talk more dryly, only about the economy, then the sanctions regime that has now been introduced, I'm afraid it will last for a long time. Let me just remind you that the famous Jackson-Vanik amendment to the USSR, which was adopted under Reagan, was canceled only at the turn of the noughties. That is, its formal cancellation took more than 20 years. Where Western business is suffering and will be able to lobby for the lifting of sanctions, it may happen faster, but in general, I think that the sanctions regime will not disappear for a long time. In many positions, it is simply already irreversible.
Let's take the same gas that Europe has already virtually abandoned. The Europeans have rebuilt their logistics. It is very difficult, but nevertheless, they adapt to the increase in prices, because, for example, the liquefied gas supplied by America, it is more expensive. But after they adapt, I'm afraid there will be no turning back.
As a summary, I will say: the current crisis, I'm afraid, is with us for a long time.
The Ministry of Finance is likely to become an intermediary. He will buy rupees from exporters and sell them to importers. Something like this: The Ministry of Finance paid rubles to Rosneft against rupees, took taxes from them, and then sold these rupees to an importing company.
— And will oil and gas, which gives the country's budget almost 40% of direct revenues, cope at all?
— Oil exporters have really managed to switch flows to China, India and a number of other Asian countries, and we have an absolute drop in physical export volumes for gas.
If oil can be transported by tankers and tanks, then gas… This is not a children's constructor, so that the pipe from the «Nord Stream» and on China is shifted with a slight movement of the hand. Now the volume of gas supplies for export to Europe is about the same as it was at the end of the USSR, that is, they have sharply decreased. Recently, export prices for gas have also been falling. Therefore, foreign exchange earnings from exports are also reduced due to this factor.
But even if we talk more dryly, only about the economy, then the sanctions regime that has now been introduced, I'm afraid it will last for a long time. Let me just remind you that the famous Jackson-Vanik amendment regarding the USSR, which was adopted under Reagan, was canceled only at the turn of the noughties. That is, its formal cancellation took more than 20 years. Where Western business is suffering and will be able to lobby for the lifting of sanctions, it may happen faster, but in general, I think that the sanctions regime will not disappear for a long time. In many positions, it is simply already irreversible.
And, by the way, I explained to these citizens, ambassadors, that the ideologists of sanctions are stupid people. Did they naively believe that the middle class would storm the Kremlin? No, but he will harbor some rudeness towards you, Europeans, to use Zoshchenko's words. Putin's electorate suffered the least from such sanctions.
— Suppose the year 2024 has come. Its going on, the Ministry of Finance is somehow spinning, saving the budget, the people are adapting. To what extent will the country's economy still have enough margin of safety accumulated from previous years?
— In fairness, I must say that thanks to the remnants of the market economy that our government once built in Russia (well, or its foundations were laid, let's say), the effect of sanctions, of course, turned out to be much less than experts initially expected. This is actively exploited by propaganda, regularly saying that we were predicted to fall in GDP by 8-10%, but it was only 1,9%.
Nevertheless, this is a fall when there was post-pandemic recovery growth all over the world. Yes, not 8%, but 2%, but a drop.
Experts believe that the liquid part is 6-7 trillion rubles. If the estimates of the annual deficit are correct, then the pot is enough for a year.
— Accordingly, only loans remain?
— Yes, the national debt is growing sharply. But only the domestic market remains for loans. And borrowing itself is becoming more and more expensive. Here is the last placement of OFZ was at about 10,2% per annum. For recent years, this is an unprecedented yield.
Accordingly, the national debt is increasing, and the costs of servicing it are increasing.