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.

9-24

Authors: Kirill L. Astapov, Rasul А. Musaev, Anton A. Malakhov

The article discusses opportunities for improving fiscal policy in order to ensure macroeconomic stability and sustainable growth of the Russian economy. Budget expenditures have several key macroeconomic goals, the quality of which determines the effectiveness of budget spending policies. The authors developed a methodology that allows evaluating changes in the efficiency of budget expenditures based on a set of indicators. The estimates are based on the Russian Federation as the example, with special attention paid to the implementation of a balanced budget policy over the past decade. In Russia, significant progress has been made in ensuring macroeconomic stability through the introduction of flexible mechanisms for macroeconomic regulation (budget rules and floating exchange rates). However, when planning budget expenditures, additional attention should be paid to ensuring long-term economic growth and inclusive development, the structure of expenditures adjusted in accordance with these priorities. In the final part of the article, we consider changes in budget policy that have become a response to the crisis situation caused by the coronavirus pandemic. It is concluded that an increase in public debt may be appropriate in the current economic conditions in the event of a qualitative improvement in the budget spending policy.

39-53

Authors: Boris I. Alekhin

This study examines the impact of fiscal decentralization on regional economic growth using panel data for 82 subjects of the Russian Federation for the period 2005-2018. General theoretical framework was drawn from the second-generation theory of fiscal federalism, and panel data econometrics suggested the appropriate empirical model and estimation method. The pooled mean group method was used to estimate an autoregressive distributed lags model based on Solow-Swan theory of economic growth. The results indicate that vertical fiscal gap has a negative and significant long-term impact on regional economic growth while vertical fiscal imbalance has a positive and significant long-term effect. The study is consistent with the modern theory of fiscal federalism, W.E. Oates’ matching hypothesis and previous empirical work using Russian data. The study also found evidence of conditional convergence of regional economies.

69-86

Authors: Аnna A. Mikhaylova, Evgeny N. Timushev

The paper explores the main factors that affect the creditworthiness of Russian regions. Knowledge of credit rating factors can help manage debt sustainability more effectively, implement a countercyclical policy, diversify debt instruments, and strengthen the fiscal sustainability of the Russian budgetary system. To determine the main factors, the credit ratings assigned by ACRA credit rating agency are analyzed. A set of economic and fiscal indicators is formed based on the analysis of press releases, the critical values are calculated, and their relationship with the current criteria of assessing the quality of regional financial management is analyzed. We found that fiscal indicators play the primary role in rating, but the institutional setting (for example, the amount of mandatory expenditures) is much less considered. The main factors of a credit rating are the share of tax and non-tax revenues in total revenues, the share of capital expenditures in total expenditures, and the amount of the regional debt. The approximate values of revenues and debt that are most likely to change a region's rating are calculated. The current criteria of the quality of regional financial management are valid due to the signs of their direct correlation to the credit rating and its factors.

100-112

Authors: Viktor N. Ageyev, Andrey V. Vlasov

The purpose of the article is to analyze the future state of legal issues connected to the use of digital assets after the adoption of the Federal Law “On digital financial assets, digital currency...” in the Russian Federation. Results: The main areas of application are highlighted for digital financial assets in the form of shares on blockchain and digital bills of exchange. The authors conclude that the new Law introduces significant restrictions, but at the same time opens up certain opportunities for business development in operations with digital financial assets. It is seen that the terminology used in the Law does not always correspond to the concepts and standards established in international legal and business practice. Practical significance: Recommendations made in this article may be useful in practice for the exchange operator of digital financial assets, the operator of the information system, and other subjects working in the innovative infrastructure when planning activities in the field of regulation of the Law and in dealing directly with digital financial assets. To harmonize activities with digital financial assets, the legislator and the regulator, represented by the Bank of Russia, can also use the practice-oriented approaches described by the authors.

126-135

Authors: Ekaterina A. Panova

Trade credit has a special meaning for small and medium-sized enterprises (SMEs). When they act as a supplier, it allows them to increase sales and cash flows, and helps establish and maintain permanent relationships with clients. Deferred payment provision is a tool for non-price competition, giving a client time to make sure of product quality. Trade credit as a financial source is an important alternative to bank lending. The article is devoted to studying the determinants of accounts payable in Russian industrial SMEs. It is based on the financial indicators calculated using the SMEs’ accounting statements for the period 2010–2018, published by Rosstat. The statistical data analysis has led to the conclusion that accounts payable are the main borrowed financial source for Russian industrial SMEs. The results of the regression analysis demonstrate a direct dependence of the accounts payable amount on sales growth and a reverse dependence of the former on the liquidity both in small and medium enterprises. Small businesses are also characterized by a negative relationship between return on sales and the accounts payable amount.

p. 15-29

Authors: Mariya A. Mihailova, Andrey V. Obynochny, Kristina V. Shvandar

Rapid socioeconomic development has produced a widening gap between economic theory and reality. As a result, it has become increasingly difficult to objectively assess whether financial regulatory policies adopted by nations worldwide are aligned with the fundamental objectives of stimulating financial market growth and promoting competition, and whether these policies are based on a realistic market picture. Such policy assessments have become particularly challenging for the payments industry and in regards to the regulation governing emergent financial market players from other industries (e.g. Big Tech). Coupled with the radical shift in the role of regulators themselves, this phenomenon raises a variety of scientific questions. Over the past few years, participants in the financial industry, primarily in the payment segment around the world, have, in practice, faced changes in the approaches of central (national) banks to market regulation. In our opinion, the key change lies in the new role that regulation is acquiring: now it not only reacts to market changes by setting a regulatory framework for them, but also becomes the central source and determining instrument of market changes. In this article, we substantiate an approach to the study of the directions of changes in the functions of macroregulation as a single mechanism in relation to a single object, in contrast to the studies available in the scientific literature within the framework of individual segments or infrastructures as well as the practice of regulation. The payment market used as an example is due to the fact that, by now, it is on this market that the changes studied manifest themselves to the greatest extent.

p. 43-58

Authors: Victor L. Dostov, Pavel M. Shoust, Gleb V. Alekseev, Svetlana V. Krivoruchko

The goal of this paper is to identify relevant (general and particular) elements of electronic money regulation in Russia, Kyrgyzstan, Kazakhstan, Belarus and Armenia. For the purposes of comparative analysis, the paper first introduces the methodology by outlining such factors as the legal status of electronic money issuers (including prudential requirements), differentiation of customer due diligence requirements in e-money systems, e-wallet usage rules, and division between the issuing and e-money transfer functionalities. Second, these factors are analyzed for each country, based on current regulatory acts. Finally, synthetic conclusions regarding major regional trends for regulation of e-money as a financial service are made. In most countries, e-money issuers are subject to licensing for the purposes of financial stability. Yet, approaches to differentiating functions of e-money actors vary across countries: in some of them, regulation recognizes “e-money operators” which transfer e-money but do not issue it. However, actual effects of this differentiation merits additional research. Almost all countries have implemented remote (simplified) identification which underlines the role of e-money as a “simplified” product aimed at financial inclusion. All countries except the Republic of Belarus and the Kyrgyz Republic still recognize non-personified electronic wallets. The research confirms that electronic money is still a specific instrument aimed at supporting financial inclusion and satisfying demand for instant cashless payments. More research is required to assess the actual effects of different regulatory approaches on the development of the e-money market.

p. 75-85

Authors: Alexey V. Maslov, Yulia A. Maklakova

This paper examines the evolution of merchant acquiring in Russia. Initially, the term was purely professional and meant the involvement of “service points” in accepting cards. Today it denotes the whole range of business for the creation and development of the infrastructure of non-cash settlement and cash services in trade and service enterprises using payment cards. Technological innovation has spurred the development of acquiring tools. However, today, when the number of non-cash transactions is steadily growing and has almost reached the number of transactions using cash, the issue of acquiring fees is still a burning issue between retail and banks. The authors consider the positions of the two parties to the dispute, and also draw conclusions about the possible consequences if the requirements of retail or banks are satisfied.

p. 99-113

Authors: Alexander D. Andryakov, Evgeniy A. Dombrovskiy

Two possible directions of fiscal measures aimed at improving Russian territories’ economic development are discussed in the paper: one at the level of largest agglomerations and another one at the regional level. It is widely accepted that agglomerations are “engines” of economic growth. The Strategy of Spatial Development of the Russian Federation until 2025 pays special attention to the development of agglomerations. However, the latter process has not only natural limitations, but also institutional ones arising from low fiscal independence of municipalities which form agglomerations. To overcome the institutional limitations, the paper proposes a set of fiscal measures, including a redistribution of tax revenues and expenditure obligations between the center of a given agglomeration and the region that contains it. The current fiscal mechanisms of stimulating economic development of Russian regions are analyzed. A mechanism of additional stimulation for regions to develop their own revenue base is proposed; it includes the transfer of receipts of VAT levied with a reduced rate of 10 % to regions in exchange for centralization of some part of corporate income tax in the federal budget. Different scenarios of this exchange are analyzed. It is shown that centralization of the corporate income tax amount corresponding to the 1 % rate in the federal budget in exchange for the transfer of VAT levied with a rate of 10 % to regions with a compensation mechanism within the transferred amounts is neutral to the federal budget and to budgets of the regions which receive equalization grants.

p. 10-25

Authors: Zhanna A. Mingaleva

The article is devoted to analyzing the main institutional mechanisms of the process of financing the programs for the least developed countries’ adaptation to negative climate change, implemented within the UN Framework Convention on Climate Change (UNFCCC). The paper presents the results of the analysis of basic institutions designed to support the financing processes for sustainable development and adaptation to negative climate changes developed at the international level. The analysis covers two stages of creating and developing a system of financial institutions for international support: the Kyoto Protocol and the Paris Agreement. The reasons behind the need for further transformation of institutional mechanisms for financing adaptation programs are identified. As a result of the study, it is concluded that the key obstacles to the successful implementation of financial adaptation mechanisms are their weak institutional basis and the presence of conflicts in international documents on climate regulation and sustainable development. Based on the institutional analysis, it is shown that the institutions that form the core of international financing mechanisms are characterized by internal and external contradictions and have low implementability as well as low attractiveness for investors. It is concluded that limited access to financial capital is one of the key reasons for the slow resolution of the problem of combating environmental pollution and negative climate change as well as achieving the corresponding goal of sustainable development.

p. 37-51

Authors: Elena P. Fedorova

Problems related to green finance exist in all the countries of the world. Those problems are especially acute in the developing countries, whose economic growth depends on recovery of hydrocarbon fossil fuels. To research the history of issues related to green finance and identify the key reasons hampering its development, this article presents a systematic literature review; it applies a systematic analytical approach to researching green finance. The paper considers the key notions and the world expertise gained in the resolution of problems related to green finance; it also presents a statistical analysis of data provided by websites of international institutions and financial organizations. This article analyzes a number of problems that are unique for green finance: disagreement in interpreting the concepts of “green finance” and “green economy sectors”; difficulties related to assessment and evaluation of the external effect exerted by green finance; institutional reasons hampering the development of green finance; information asymmetry; and problems related to estimation of credit and market risks. The paper considers innovations in the financial sector that are typical for long-term investment, such as green bonds, asset-backed security, and yield cos. As a result, the article concludes that cooperation between the government, international institutions, and business companies is necessary to resolve the issues of green finance. The government ought to play the key role in that cooperation — it must inform, coordinate, stimulate, and control activities related to green finance.

p. 69-84

Authors: Vladislav N. Rutskiy, Maria V. Osipenko

These days many countries declare saving natural resources and reducing anthropogenic pressure on the environment as being among their national priorities. They place importance on sustainable development and the transition to a green economy model. However, the problem of assessing the effectiveness of the green economy and the competitiveness of related technologies is still open to debate. The paper examines approaches to measuring the green economy and presents an empirical analysis of the relationship between labor productivity in the manufacturing industry and green economy factors for a number of European Union countries, characterized by high performance in the global rankings of the green economy. Studying approaches to the identification and measurement of the green economy, the authors identify trends in the realization of a new environmentally sustainable development model in the countries of the European Union and the dynamics of key indicators of the green economy. The paper develops an empirical correlation and regression model that defines, along with other factors, the influence of green economy factors on labor productivity in manufacturing. An assessment of the model specification based on panel data from the manufacturing industries of seven European countries shows a significant positive effect of investment in equipment and plant for pollution control on labor productivity in the industry. The results indicate the relevance of further studies, in particular, the possible attractiveness of private investment in the formation of a green economy in various sectors of the economy in both developed and developing countries.

p. 101-116

Authors: Irina I. Prosvirina, Natalya S. Dovbiy

Russia has been gradually expanding the principles of green development in the national economy. The article examines the state of methodological and institutional support for green investments, and analyzes the problems that hinder the financing of the best available techniques. The leading role of the state in eliminating institutional gaps between the individual interests of investors and the collective problems of society is established. The authors have investigated various criteria for selecting sources of financing and concluded that it is appropriate to develop green lending relationships in Russia, taking into account regulatory restrictions and ESG risks. In the theoretical (methodological) aspect, the authors have identified specific features of green financing as a trinity of elements: “Object–Subject–Institutional Environment”; each of the features must meet the principles of green financing. The necessity of further formation of the institutional environment for green financing is justified. In practical terms, statistical data-based modeling has been carried out for entities from a list of 300 polluting enterprises that need to update their fixed assets based on the best available techniques. This study has provided answers to the questions of what factors influence the growth of non-current assets, including factors related to the sources of their financing. It is determined that first of all enterprises solve the problem of current management and working capital adequacy, and only then begin to direct financial resources to updating the fixed capital. Based on the results obtained, the main problems are formed and the main tasks of the nearest development of green development principles in the Russian economy are shown. When writing the article, the authors used modern methods of systemic and statistical analysis as well as economic and mathematical modeling.

p. 8-27

Authors: Marina Yu. Malkina, Igor A. Moiseev

The article deals with the endogeneity of money supply in the Russian economy in the context of the changes made to the rules of monetary regulation. We summarized and analyzed the basic concepts of the modern theory of endogenous money, and described the approaches of various researchers to studying the impact of financial innovations and changes in the principles of monetary regulation on money supply endogeneity. In the empirical part of the research, in order to test the hypothesis on the endogenous origin of the money supply in the Russian economy in 2010–2018, we applied the Granger causality test and the Johansen cointegration test as well as VAR and VECM models. The study was based on the monthly data for the monetary sphere (M2 monetary aggregate, monetary base, and money multiplier), the banking sphere (loans, deposits, and interest rate) and the transactional sector of the economy (wholesale and retail turnover). We split the time series into two intervals: 2010–2013 and 2014–2018, because the monetary regime was being changed significantly throughout 2013–2014. As a result, the hypothesis of money supply endogeneity has not been rejected for both periods of time, and evidence of structuralism has been revealed. In the short term of 2010–2013, it was mainly commercial banks that reacted to an increase in money demand (through money multiplier); however, in the long run the Central Bank of Russia prevailed (through changing the monetary base). Nevertheless, in 2014–2018 the Bank of Russia demonstrated an efficient adjustment of money supply toward money demand, which had been reflected in the response of the monetary base in the short term. Meanwhile, in this period the role of commercial banks in lending was increased through operational managing of their own resources, which was reflected in the reaction of the money multiplier to the growth of business activity in the country. These changes indicated an amplification of money supply endogeneity in the Russian economy. In addition to passive adaptation, we revealed a particular activism in the monetary sphere, when the initiative of money emission came not so much from the monetary authorities as from commercial banks fighting for a market share in the face of intensified banking competition and reduced bank margins.

p. 48-59

Authors: Irina V. Kiviko, Nina I. Malis

The entry of the Republic of Crimea into the Russian Federation created problems of the republic’s adaptation to the budget and tax legislation of Russia. Most of these problems have already been resolved, but a number of questions still remain. The application of the Russian tax legislation in Crimea initially led to a fall in the regional budget’s own revenues, but gradually the situation began to improve. In order to develop business in the territory of the Republic of Crimea, it was necessary to apply a flexible tax mechanism, including the creation of a free economic zone and varying tax rates for special tax regimes, and this task is being consistently solved. The main objective of the present time is to reduce the shadow economy through tax administration as well as to introduce a tax on professional income and a mechanism for registering real estate. The proposed abolition of the single imputed income tax, making up a substantial income for local authorities, cannot be offset by a patent tax form or other sources. It is necessary to change the budget legislation on the distribution of tax revenues between local budgets according to both basic taxes and special tax regimes—even in the face of increased personal income tax revenues as a result of growth in the tax base and the inclusion of separate divisions in regional taxpayers.

p. 76-90

Authors: Denis V. Bryzgalov, Julia V. Gryzenkova, Alexander A. Tsyganov

Subject matter. Insurance and insurance activities in the digital economy. Topic. The relevance of the topic is due to the need to determine the specifics of insurance in the digital economy as well as to conduct a study to assess the practical application of new digital technologies in the Russian insurance market. In the existing works by Russian and foreign authors, the problems of practical use of digitalization processes by Russian insurers have not been systematically considered. Goal. Theoretical justification for changes in the insurance category in the context of economy digitalization and the study of practical implementation of digital technologies in the Russian insurance market. Method. The paper considers the results of a market study of 30 leading Russian insurers on the digitalization of the insurance market, aimed at identifying the problems and prospects of this process in Russia. Results. The theoretical definition of digital insurance is given, and its duality in the digital economy is shown, associated with the insurance of specific digital risks and with the introduction of new digital technologies (digitalization). Digitalization indicators of insurance activities have been developed and calculated—in particular, the indicator of the use and penetration of digital technologies. The results of a study on the demand for new digital technologies for business processes among insurance companies are reviewed and explained. Digital risks are classified, and the features of the implementation of cyber risks as well as the risks of artificial intelligence and the Internet of things are shown. The prospects for the use of digital technologies by insurers in the near future are estimated. Scope. The results of the study can be used by insurance companies to assess the competitive environment in terms of the use of digital technologies and in the strategic planning process, as well as by government bodies to assess the state of affairs and prospects of the insurance market's participation in digital economy formation.

p. 102-113

Authors: Sergey A. Perekhod

The article is devoted to the study of the risks of external corporate debt and instruments for leveling current shocks (sanctions, global recession due to the COVID-19 pandemic and low oil prices) for macroeconomic stability. A detailed decomposition has been carried out, and an analysis of probable vulnerabilities has been performed; a conclusion is drawn about the most important aspects, namely the redistribution of obligations on public finances. Based on a sample of debt dynamics for 2006–2019 (56 observations), a more active increase in borrowing by state-owned companies is revealed (compared with the private sector), and the concept of “state support option” is introduced. The definition of financial stability in the context of debt sustainability is clarified. The strategy is based on issues related to threats to countries. The micro- and macroprudential approaches are compared with the features of their application in an open economy.