Page 18 - RusRPTJun20

be a transition between the Putin and the post-Putin eras, according to a recent ​paper.
Mishustin’s government has indeed accelerated budgetary spending. In the first two months of 2020, 3.1 trillion rubles were spent, putting budget execution at 16% of the yearly plan—an improvement from 2019’s 14% for the same period. The government also ​planned​ to boost spending on the national projects by 7.7%. However, by the end of March, it was already clear that it would likely spend less.
The ​national projects​ are primarily funded from the federal budget, which provides 13.2 trillion (51.3%) out of the 25.7 trillion rubles initially earmarked for this purpose. Regional budgets contribute another 4.9 trillion (19%), while 7.5 trillion (29.2%) come from extra-budgetary sources, that is, the private sector. Private investment is expected to spur local growth, but the 2019 Oxford study cautions against this optimistic view: Russia’s low investment rate—only 20.6% of its GDP last year—is well behind other emerging markets. The problem is certainly not a lack of money, as in 2019 about ​30 trillion​ rubles were sitting in business accounts, but rather a ​growing concern​ among investors about political instability, score-settling, and the lack of rule of law. As a result, businesses struggle to make investment decisions, especially when it comes to the long-term planning for implementation of the national projects.
Regional budgets are not in good shape either. In 2019, the number of regions with a budgetary deficit ​went up​ from 15 to 35. Regions are wary of increasing their debt burden, since by accumulating large debts they risk being put under the direct supervision of the Ministry of Finance. Meanwhile, their reserves are running dry. The National Credit Rating Agency ​estimated​ that if oil prices remain low in 2020, the cost of debt financing for the regions could result in 62 out of 83 regions depleting their reserves by the end of the year. This prediction came before COVID-19 hit Russia, which will further hurt regional revenues. The extent of the problem might be clearer in the fall of 2020 when regions apply for budgetary transfers.
To shore up the national projects, the government under then Prime Minister Dmitri Medvedev ​initially planned​ to use some of the money saved in the National Welfare Fund​ (NWF), a rainy-day piggy bank that accumulates excess budget revenues when oil prices are above $40 (the fiscal rule)—primarily to maintain stable pension coverage, but also to plug holes in the federal budget or invest in strategic projects in case the liquid part of the NWF reaches 7% of GDP. In November 2019, the government predicted that in 2020 it would be able to spend a maximum of 1.5-1.7 trillion rubles, in 2021 3.7 trillion, and in 2022 5.8 trillion. However, in reality the government meant to spend only 15-20% of this amount this year, or 300-400bn rubles on the national projects, while attracting the rest from other sources.
This is not the first time that an ambitious socio-economic development program has been undermined by a larger crisis in Russia. In 2008, the government planned to spend about $1 trillion under the ​Concept of Socio-economic Development of Russia until 2020​, which had to be significantly ​reworked​ in 2012 as Russia was struggling to recover from the global financial crisis. The new program still ​failed​ to deliver its targets. Putin’s “​May Decrees​,” a series of spending priorities announced after his reelection in 2012, faltered amidst the ​post-2014 economic slowdown​ and further centralization of political power and budgetary income at the expense of regional governments. The present crisis, which seems to have derailed the national projects for the time being, will likely also expose the very deficiencies—e.g. derelict health care facilities in the regions—that they were designed to remedy.
Despite the ambitious claims by Putin and the bold initial efforts of Mishustin, it is increasingly clear that the implementation of the latest national projects will
18​ RUSSIA Country Report​ June 2020 ​ ​www.intellinews.com