Financial crisis of 2021: What sectors will suffer first of all and what should the authorities do to prevent a collapse of the economy?
In 2021, a bubble bursting in the consumer lending market will burst in Russia, said Economic Development Minister Maxim Oreshkin . If nothing is done, then both citizens and the economy will suffer. GDP can collapse immediately by 3%, the economy will go into recession, and a full-blown crisis will erupt in Russia. Executive.ru editorial staff asked experts the following questions:
- What will be the scale of the crisis: which sectors will be affected first of all, how many households are at risk?
- What should the government do to prevent a collapse of the economy?
Opinions of experts on a number of positions have diverged. In particular, some believe that it is necessary to lower the key rate, others – that it needs to be raised.
It would be logical to give people the opportunity to work
Marat Bisengaliev , director of the Moscow branch, AO Afaya, expert Executive.ru
Almost all, except for a few organizations that are directly locked in financing from the state budget in any size, have long been at risk. All the rest depend on many risks that are not calculated in advance.
Of the unconditional risks – an increase in tax pressure, rising prices for raw materials, including on the world market, monopolism in the banking sector, increasing the interest burden on business and the public. Another increase in the cost of services of natural monopolies, a decrease not even in the incomes of the population , but in the amount that remains for each household after payment of all unavoidable expenses (housing, food). Accordingly, the risk zone will grow, primarily due to those who produce products or provide services in conditions of high competition, and with a small margin. It will be increasingly difficult for them to remain in profit.
Until a certain point, such a situation was beneficial for the authorities, because in competition for labor, business interfered with the state, and any of them — even individual entrepreneurs. But the situation can change so that extra people can no longer find application even in government agencies, which for various reasons reduce their need for personnel.
Therefore, it would be logical to give people the opportunity to work: reduce taxes, rental rates, give affordable loans, remove some bureaucratic slingshots (licensing), limit all kinds of fees. Nobody, of course, plans to encroach on the budget – the “top” may at least not interfere with work. These gentlemen need to return to the rule of management of Comrade Brezhnev – live yourself as you like, but do not bother people either.
Financial crisis of 2021: A group of “professional borrowers” has formed in Russia
Alexander Zhirikov , CEO, Mega, Executive.ru expert
According to Maxim Oreshkin, the bubble in the consumer lending market will burst in 2021 due to the fact that the Russians owe 8 trillion rubles and take new loans to pay off old debts. In this regard, the problem of the debt load of the population will “explode” in 2021: the economy will go into recession and a crisis may begin in the country.
How substantiated is the position of the minister? In his opinion, about a third of Russian borrowers spend on loans over 60% of their monthly income. But from his words it is not clear how many citizens, what incomes they have, how they cope with the debt burden. According to the United Credit Bureau , 57.7 million Russians have open loans. Equifax Credit History Bureau cites a figure of 36.8 million borrowers, the difference is huge.
Center for Market Studies ISIEZ Higher School of Economics indicates that a so-called group of “professional borrowers” has gradually formed in Russia, who take loans not for large purchases, but to maintain current consumption and pay off existing debts. This group includes mainly the low-income population. According to the National Bureau of Credit Histories , as of April 2019, in Russia, there are 5.8% of problem borrowers, that is, 2.6 million people. The number of such borrowers is declining. According to the OKB, about 8.5 million Russians can be considered credited. This is 14.6% of the total number of borrowers with existing loans.
It seems that the Ministry of Economic Development is focusing excessively on the growth of the nominal volume of household debt. By itself, the debt burden of the population as a percentage of GDP has decreased markedly and is 4.9% against the peak of 5.6% in 2014. In addition, in Russia there is no significant increase in unemployment, which could affect the growth of arrears. Experts do not exclude that the Ministry of Economic Development, criticizing the Central Bank, is trying to solve the problem not of a debt burden, but of a weak growth in real incomes of the population and investments in fixed assets.
Among the options for saving from the “bubble” as a support to Russians with a high debt burden, one could consider the following:
- Restructuring of bad loans.
- Payment holidays for all major loans.
- Write-off of the most problematic “bad” debts.
- Simplification and cost reduction of personal bankruptcy proceedings .
- Structural changes in the financial and credit system, make the transition from unsecured consumer lending to collateral, introduce restrictions on the issuance of long loans, introduce a limit on the issuance of loans to borrowers with high debt burden, reduce bank rates.
The effectiveness of these measures will depend not so much on the form of support as on its focus.
The scale of the crisis will be huge.
Alexander Bykovsky, economist, lawyer, political scientist
The scale of the crisis will be enormous. First of all, the financial sector of the economy will suffer. Because of the inflated “credit bubble,” people simply have nothing to give consumer loans. Incomes do not grow, and the debt load of the population increases. Domestic production, which is connected with the financial sector and consumer loans, will also suffer. That is, the real sector of the economy will be affected. As purchasing power decreases, so does demand. There will be nothing for workshops, factories, farms to pay for utility bills, production costs, salaries in conditions when too few products of producers are bought. This will affect agriculture, and the food industry, and any other industries.
Both the primary and secondary sectors of the economy will suffer. For example, in construction. Demand in the real estate market will fall, as the debt load in this sector is very high. Apartments will stop buying, government contracts will stop. The same thing will happen with factories for the production of building materials. The tertiary sector of the economy is trailed. How can the service market develop if the population does not have money?
What do the authorities need to do? First of all, to avoid a huge increase in consumer loans. For consumer loans to introduce restrictions and stop their random issuance. On the other hand, weaken the procedure for issuing long-term loans. To give the population more favorable and convenient conditions for their receipt. A person should not take food and essential goods on credit. To develop more loyal and convenient lending conditions for small and medium-sized businesses. And also to improve the investment climate for investments within the country, and to attract investment from abroad on conditions favorable to our economy and the population.
Moreover, do not let our law enforcement and supervisory authorities unreasonably pursue investors. To create powerful mechanisms in the legislation for the protection of investors and their rights in the Russian Federation, as well as for small and medium-sized businesses. To regulate the judicial system, as foreign investors are very afraid of it and consider it unfair.