Page 12 - RusRPTFeb21

The Russian government’s decision not to spend money on supporting recovery growth will undoubtedly affect the pace of recovery. Such spending would contradict the government’s policy from previous years, which prioritizes economic stability above all else; accumulating reserves and only spending them on large-scale “national projects,”, which according to the government’s plan, are supposed to radically alter the country’s economy. Spending on the national projects is effectively frozen at the moment due to the crisis, but the government is continuing to accumulate reserves to implement them in the future.
The crisis has also disrupted macroeconomic stability. In the spring and summer, the government had to spend massive amounts of money on combating the coronavirus epidemic, supporting the economy, and public demand. The additional spending (​2.5​–​3.5​% of GDP, according to various calculations) was less than that of rich and developed countries, but rather significant among developing economies. In combination with the fall in budget revenues due to the collapse of oil prices and the slowdown of domestic production, this created a large budget shortfall; in 2019, the ​consolidated budget​ had a surplus of 1.9% — in 2020, the deficit was 4.6%.
In the summer, the authorities decided to urgently carry out “budgetary consolidation,” reducing the budget deficit by cutting spending and — to a lesser extent — raising taxes. Economists pointed out immediately that a drastic spending cut will lead to a sharp slowdown in recovery and, possibly, even a renewed crisis.
In the end, the draft crisis budget for 2021–2023 contained the following amendments:
· The budget cuts for 2021 (in comparison to the real, increased spending due to the crisis in 2020) will be smaller than anticipated — just over a trillion rubles (about $13.4 billion). In the summer, the expected cuts totaled slightly more than two trillion rubles (about $26.8 billion).
· This will be enabled by a temporary change to the ​budget rule​, namely, the maximum amount of borrowing required to finance the budget deficit.
· The budget’s structure is also set to change: social items will be financed almost as abundantly as at the height of the coronavirus epidemic (which will, incidentally, be very useful to the authorities during a ​State Duma election year​). Many other items — for example, support for the economy — will still face cuts.
· Budgetary “consolidation” will continue in 2022–2023 — until the deficit drops from the current crisis level, 4.4 percent of GDP, to 1 percent of GDP.
· Russia’s debt level will increase sharply — from 12 percent of GDP in 2019 to more than 21 percent of GDP in 2023. However, the country’s debt to GDP ratio will remain one of the lowest in the world.
· According to IMF experts, in 2021–2022 Russia is expected to have deeper budgetary consolidation than all major developing countries.
12 ​RUSSIA Country Report​ February 2021 ​ ​www.intellinews.com