16 January 2020 Russia awaiting a new government
Tatiana Evdokimova
Russian government unexpectedly resigned yesterday, and a new cabinet is to be presented in the course of the week. Market reaction was muted. Economic policy preset by Putin’s May decree and national projects is unlikely to change.
Putin proposed changes to the constitutions
In his yesterday’s annual address to the Federal Assembly (Russian parliament) President Putin proposed to amend Russian Constitution. In particular, the key proposed amendments include an extension of the authorities granted to the legislative branch of power. The parliament would get the authority to approve the prime minister nominee proposed by the president. The parliament would also approve the cabinet composition proposed by the confirmed prime minister (currently this power resides with the president). Another proposal is to introduce a hard two-term limit on presidential service (currently the constitution states that the same person may not serve more than two consecutive presidential terms). The amendments de facto redistribute the balance of power from the president to the legislative branch of power. The president later signed an order to create a working group that would develop the amendments to the constitution. So far it remains unclear whether a referendum will be held to approve them. The timeline of the whole process is also highly uncertain but there will hardly be excessive haste.
The government resigned
The Prime Minister Dmitry Medvedev announced the resignation acknowledging that the proposed amendments imply changes in the balance of power and that this situation requires the government to allow the president to make all necessary decisions for that. Putin accepted the resignation of the government oering to Medvedev a post of a deputy chairman in the Security Council. The post of prime minister was oered to Mikhail Mishustin, the head of the Russian tax service. The parliamentary vote on the proposed candidate is scheduled for January 16. In case of the parliamentary approval the newly appointed prime mister has one week to give proposal regarding the cabinet composition. The incumbent government will continue carrying out its duties until the new government is formed. In our view a major cabinet reshule doesn’t look as a very probable scenario and most of the key positions in the economic block of the government are likely to remain unchanged.
e-markets.nordea.com/article/55462/russia-awaiting-a-new-government The market reaction was relatively muted
The RUB briefly depreciated by around 0.4% but in a matter of an hour returned to the level that prevailed before the news became public. In our view, the change of the government is unlikely to have a significant impact on the RUB. The fundamental strengths of the Russian economy (high FX reserves, healthy public finances, low public debt, current account surplus, budget rule and inflation targeting) remain in place. The RUB-denominated sovereign debt auctions that took place yesterday before the government resignation attracted sustainably high demand partly generated by foreign investors confirming that RUB denominated assets still look promising to market participants. We believe global risk appetite and signals from the Central bank regarding its future monetary policy steps will remain more important for the RUB than the political events described above. If global risk appetite remains on a strong footing we see some room for further RUB appreciation in Q1 because of a positive seasonality and continued foreign capital inflow into the Russian financial market.
Chart 1. Sovereign debt auction results
Implications for the economy
The nomination of a new prime minister will unlikely change the course of the economic policy in Russia which is outlined in Putin’s May decree signed in 2018 and in national projects that detail the actions needed to reach the targets set in the decree for 2024. The top priority of the new prime minister and its cabinet will be to make sure that the implementation of national projects goes in line with the tight schedule. 2020 will be very important for delivering on national goals set for 2024, as most of the preparatory work has to be finished this year to set the stage for growth of more than 3% starting from 2021 that is included in the ocial government’s forecast. The new prime minister nominee proved to be an ecient head of the Russian tax service that was in the center of the government’s successful eorts to scale down shadow economy in Russia.
Chart 2. Non oil-and-gas budget revenue growth exceeded nominal GDP growth in recent years
e-markets.nordea.com/article/55462/russia-awaiting-a-new-government Tatiana Evdokimova Chief economist [email protected]
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