A positive macro picture for a land one is looking at investing in is essential, and the purpose of this report is to assess if Russia has a positive macro environment within which to invest.
This report provides a macro fiscal flow model and assesses the likely impact of the change in macro fiscal flows on investment markets.
One can summarize the national accounts in the following formulae:
Private Sector [P] = Government Sector [G] + External Sector [X]
and
GDP = Private Sector [P] + Government Sector [G] + External Sector [X]
These are accounting entities and are true by definition. See the methodology section below for more detail on this formula.
The report goes forward on a sector-by-sector basis, starting with the private sector.
Private Sector
The private sector is where the stock market is, and we as investors want the stock market to go up. The stock market can only go up if the flows into it are positive. The private sector derives income from three sources:
Credit creation from banks - Banks lend more than is repaid in loans (credit money).
Externally from overseas commerce - Exports bring in more than imports cost (overseas credit and state money).
Government spending - More is spent than taxed (State money).
In an ideal scenario, the private sector would receive large, and growing, income flows from all three sources, and at the very least, the overall impact should be a positive flow even if one or two of the three flows are negative.
The stock market in the private sector, as well as all other private financial assets, should rise if the overall income flow into the private sector is positive. Certainly, the stock market would be unlikely to rise if the income flows were negative. Even in a shrinking economy, some sectors can
