Financial Journal

p. 9-27

Authors: Valery V. Kizilov

In 2020, almost all large countries experienced a decline in GDP and other indicators of economic activity. This trend followed the news about the COVID-19 pandemic and had several features typical for cyclical economic crises. At the starting point, both demand and supply factors were negatively affected. This paper looks into data on GDP, retail sales and foreign trade dynamics in the first nine months of 2020, and analyzes the difference between developed and developing countries. Specific phenomena are observed: Germany and its small neighbors had relatively mild crises; developed countries had their trade balances deteriorating; the trade between the USA and China revived; and American deficit has been growing since April 2020. Some hypotheses to explain the above are offered. For instance, the German economy might have been able to adapt swiftly due to greater freedom of entrepreneurship than in France and Italy and due to the lowest debt ratios among G7 countries. The trade balances of developed countries deteriorated, possibly, because of a decline in production as a result of anti-COVID lockdowns, with consumption encouraged by stimulating policy measures.

p. 39-57

Authors: Anton V. Gorodnichev, Tatiana V. Kulakova, Maria A. Moiseeva

Throughout the period after the municipal reform in 2003, the governing of Russian cities has been changing. A city as an object of governance is located at the intersection of interests of different levels of public authorities and is not limited only to local authorities This article investigates how budget autonomy of Russian cities has been changing for the last 16 years, and how exogenous economic shocks and large-scale federal initiatives such as the “May Decrees” have influenced the budget autonomy of Russian cities. The paper considers a hypothesis that there was a transition to multi-level governance of Russian cities in 2006–2019, which led to significant reduction of the budget autonomy. Budgets of the 35 largest cities of Russia (except for city-regions like Moscow and Saint Petersburg) were collected and analyzed in terms of their revenue and expenditure sections to test the proposed hypothesis. The relationship between the economic level of development and budget sufficiency was investigated with cluster analysis. The main result of this research is that Russian cities have become dependent on the financial grants from regional governments since there is no national policy of stimulating the economic development of cities. The national economic crisis of 2014 accelerated the process of governance centralization. In addition, the budget autonomy of municipalities was reduced due to the fact that achieving indicators of the May Decrees had become the primary objective for the public authorities. The share of the income tax in local budgets increased significantly although the share and diversity of other income sources decreased.

p. 75-92

Authors: Natalya A. Khutorova

The article is devoted to the development of instruments for catastrophe risk financing. The state of the global market for disaster risk financing is analyzed in order to identify the main development trends and the possibilities of using conceptual approaches in the Russian practice of the financial market. It is proven that the development of the catastrophe bond market has prospects in conditions of permanent instability, since catastrophe bonds are unique and highly attractive due to the lack of correlation with macroeconomic events. It is suggested that the instruments of catastrophe risk financing can be considered in the context of the development of sustainable finance. The paper identifies the main problems slowing down the development of the Russian catastrophe bond market, and formulates proposals aimed at developing the market for insurance-linked securities (ILS) in the Russian Federation. Pilot CAT bonds emission prospectuses should be based on structured bonds, with elements of a subordinated bond. There is a need to introduce into the Russian legal field a term defining ILS as a category. It is proposed to register special purpose vehicles (SPVs) and catastrophe funds in Russian offshores. The Russian analogue of catastrophe funds should be a closed-end investment fund with high funding for qualified investors. It is proposed to update the formula for calculating the creation of and the procedure for using reserve funds, in particular with the use of catastrophe risk financing tools. A pilot issue of CAT bonds is proposed to be conducted on behalf of VEB.RF, as bonds sponsoring regions exposed to high natural risks. In the process of developing socially responsible investor practice and tools for socially responsible investments, it is suggested to establish a Russian “Green Index” and to create green ETFs in Russia. Due diligence (DD) approaches are recommended for decisions on issuing catastrophe bonds.

p. 107-124

Authors: Tatyana G. Arbatskaya

The global economic crisis, exacerbated by the pandemic of the new coronavirus infection, has led to a significant deterioration in the financial state of most economic entities. This problem has also affected public sector entities receiving budget financing. Even if a given public sector entity is engaged in entrepreneurial activity, with a decrease in sales cash flow decreases, whereas accounts receivable and payable increase. To carry out their statutory activities, state entities of the penitentiary system in the Russian Federation use not only budgetary funds, but also funds received from the sale of products manufactured by convicts. Therefore, the interest of users in the cash flows of penitentiary institutions is steadily increasing. The above strengthens the information and analytical functions of cash flow statements. Unlike other forms of reporting, the cash flow statement should report cash flows during the period classified by operating and investing activities (financing activity is not typical for penitentiary entities). In addition, the statement of cash flows provides useful information not only for controlling the use of budget funds, but also for current and forecast analysis. The article investigates the theoretical principles of accounting of cash flows of public sector entities of the penitentiary system of the Russian Federation. Results of the study include a proposal to improve the form of the cash flow statement by including an analytical feature — the source of financing activities. The study also presents and tests a methodology for analyzing cash flows in the context of funding sources.