Russian businesses actively cutting investment programs amid current monetary policy - Reshetnikov

MOSCOW. Dec 4 (Interfax) - Russian companies are assessing the period of tight monetary policy as a medium-term prospect, thus they are revising their respective investment plans downward against this background, Economic Development Minister Maxim Reshetnikov said at the VTB Russia Calling! forum on Wednesday.

"Businesses take the actions that the Central Bank is implementing very seriously. We see that there is an active revision in investment programs at the company level, and they are being actively reduced. Namely, businesses believe that the period of high rates is generally for the medium-term, that this is not a one-time action, that this is not the peak that was in 2022, so they are seriously reducing investments," Reshetnikov said.

Companies are also facing a decline in demand for their products amid the Central Bank's high key rate of 21% per annum. Reshetnikov has cited machinery engineering, and the auto industry particularly, as an example where companies are talking about reductions in the volume of orders.

In this context, Reshetnikov noted the large volume of subsidized loan programs that were previously launched, and whose subsidies are becoming increasingly expensive for the budget as the key rate rises. "It is very important for us to carry out this joint policy, and within the scope of this policy there is a discussion of the size of subsidized programs, including new subsidized loans, I mean those that are subsidized by the government. I will point out that as of today, we have already issued subsidized loans worth 17.5 trillion rubles, including mortgages. This means that a 1% increase in the rate costs the budget 175 billion rubles, which is very significant for us even without considering the growth of debt," he said.

Another problem associated with the current monetary policy is the high level of debt and growth in debt servicing costs, including for state-owned companies, whose investment plans now have to be revised.

"Companies are faced with an increase in the debt burden and debt servicing, though they also need to implement investment programs at least at a minimum level. Therefore, the government is optimizing the investment programs together with companies, reducing them. Nevertheless, all of this unfortunately also requires new borrowing," Reshetnikov said.

The Economic Development Ministry and the Central Bank of Russia are currently discussing the scale of these borrowings by state-owned companies, he said.

The growing debt burden will also be influenced by the ongoing process of converting foreign currency debts into ruble-denominated debts. "In 2022, we had $320 billion in corporate debt, and conversion was happening at a rate of about $10 billion per quarter. So, if we look even at 2024, the estimate is that about 4 trillion [rubles] in corporate credit growth is [due to] this conversion, meaning companies paid off their Western loans and of course took new loans here in the national system. And that's a 30% increase in the credit portfolio. It's good that we've already covered half of the way from the $320 [billion], but it's bad that half remains. So, this conversion also needs to be considered in the overall balances," Reshetnikov said. The government and the Central Bank work in close cooperation, and it is important to ensure credit is available in Russia, he said.