As Covid-19 economic pain bites, Russia loses coveted status of having more cash on hand than it owes in liabilities

If you think Covid-19 has only affected the pocket of Joe Public, think again. With high spending and dwindling national assets, the Russian government now owes more money than the sum total of reserves in the country’s coffers.

In practical terms, the effect is more of a dent to national pride than any real danger to the country’s economy. After all, every single G7 state, not to mention India and China, would be unable to pay off its debts if urgently required. However, Moscow has placed a high value on not being beholden to creditors.

In April, at the beginning of the coronavirus crisis, Russia’s combined deposits in the central bank and commercial banks reached a record 17 trillion rubles ($240 billion), exceeding the national debt by almost 2.5 trillion rubles ($34 billion). However, by the beginning of July, deposits had dropped so significantly that state debt had overtaken assets by 1.55 trillion rubles ($21 billion).

According to Moscow daily RBK, the drop does not threaten the stability of Russia’s economy, but is “a symbolic consequence of the current crisis.”

The fall in the total value of Russian assets is due to a mixture of the pandemic and falling oil prices, as well as increased budget spending to support families and businesses, RBK reports. A shortfall in profits from hydrocarbons, combined with unexpected Covid-19-related expenditure, has forced the Ministry of Finance to use up some of its savings to balance the budget.

In the second quarter of 2020, due to Covid-19 lockdown restrictions, Russia’s GDP fell by 8.5 percent. While this was a steep drop, it was ultimately welcomed as the government had estimated that it would contract by 9.6 percent. It also pales in comparison to some of the economic pain in Western countries. In the United Kingdom, for instance, GDP collapsed by 20.4 percent during the same period.

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