Budget and Tax Policy and the Public Debt Market in the First Half of 2020

Abstract

The pandemic of a new coronavirus infection for the Russian economy was a double shock: against the background of the spread of COVID-19, oil prices fell sharply. This was a serious shock for the economy and budget revenues. However, it was the budget expenditures that played a major role in supporting output. In addition, monetary policy was expansionary. Thus, in the first half of 2020, a combination of stimulating fiscal and expansionary monetary policies was observed. This combination increased the demand for government bonds. During the periods of the next decrease in the key rate of the Central Bank, an increase in the yield of OFZ was observed. Despite the fact that the level of Russia’s debt burden is low, there are specific risks that limit the possibilities for increasing debt. These include possible sanctions, a weakening of the ruble, falling incomes of the households and a high probability of an increase in bankruptcies of those organizations that will not be able to survive the consequences of the introduction of restrictive measures. Given these risks, it is necessary to consider mechanisms to support the economy using debt instruments and quantitative easing policies.