The boss of Russia’s biggest construction holding has warned that the country’s high interest rates could cause many bankruptcies in the construction sector.
Alexei Krapivin, chief executive of Natsproektstroy, told the Russian RBC news website that the Central Bank’s 20% key interest rate was preventing firms getting access to capital, leaving many unable to service debts or fund projects, The Moscow Times reports.
“Every company, without exception, is feeling the impact of expensive capital,” Krapivin said. “Many entrepreneurs believed they could manage their debt portfolios and invest in their programs and other projects, but now cannot service their obligations under the existing lending rates.”
“Large infrastructure projects are capital-intensive and take years to complete,” he said. “If you calculate payback periods purely mathematically, such projects aren’t viable. You’d earn more by putting the money in a savings account,” he added.
Battle over interest rates
Russian Central Bank Governor Elvira Nabiullina has come under increasing pressure from business leaders to lower the key interest rate amid slowing economic growth.
She resisted for months, citing high inflation and an overheated economy as Russia ploughs cash into its war on Ukraine, but in June she lowered the rate to 20%.
Observers have warned of “stagflation” in Russia’s economy, which is when inflation stays high despite stagnant growth.
Last month, a report from the Washington-based Center for European Policy Analysis suggested that a period of war-fuelled growth may be ending.
“Signs of slowing are everywhere — from a decline in corporate lending to a growth in private deposits, from lower industrial output to contracting imports,” wrote senior fellow Alexander Kolyandr. “Even the labor market, as overheated as it is, is showing some slight signs of declining demand.”
He added: “The Russian economy has been growing for two years on budgetary steroids, driving up inflation, demand, salaries, and investments. Now it has hit a wall. That’s being felt by consumers, with everyday items like potatoes rising by 173% year-on-year, and the government proposing price controls for the so-called Borscht Index of the popular soup’s ingredients.”
Natsproektstroy’s Krapivin called for a medium-term infrastructure plan with fixed funding levels, early payments into dedicated bank accounts and official wage guidelines to help companies budget more effectively.
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