Sell-Off No Quick Fix For Russia’s Budget Deficit

Russian president Vladimir Putin is pinning his hopes on privatization to help ease Russia’s 2016 budget deficit, which, according to some estimates, could reach $38 billion, or 6% of GDP.

The deficit partly reflects the drop in oil prices, which is impacting the Russian economy.

But as each of the assets in the pipeline for privatization—oil firms Rosneft and Bashneft, diamond miner Alrosa, VTB bank, shipping company Sovcomflot, airline Aeroflot and Russian Railways—are in slow-growth sectors, they are unlikely to attract large bids.

To ensure the privatizations don’t mimic the disastrous sell-offs under former president Boris Yeltsin, which saw assets sold at bargain prices to oligarchs who got rich quick and funneled funds out of Russia, Putin has added some conditions: Shares cannot be sold at a knockdown price or hidden offshore, and the state must retain control of strategic and systemically important companies.

Martin Gilman, a former senior representative of the International Monetary Fund in Russia and a professor at the National Research University Higher School of Economics in Moscow, says the bottom line is that there are unlikely to be any such sales in the near future, not least because of the safeguards, although the desire to privatize—now that the post-oil era of easy money seems to be over—is genuine, he adds.