Russia’s new government expected to push spending up

Russia’s new government expected to push spending up

After five years of cautious and moderate economic policy, Russia has had enough room to increase budget spending, believe analysts. New government head Mikhail Mishustin has already declared his intention to realise President Putin’s goals such as reviving the country’s economy and improving living standards.

The new government of the Russian Federation is in a hurry to open up the floodgates to increased spending after years of tight fiscal policy, considers Bloomberg. “We need to implement the national projects more actively, so that people feel the changes in their lives and surroundings in the near future,” stated Prime Minister Mikhail Mishustin at the first meeting of his new cabinet on 21 January. “Without a doubt, we have to achieve faster economic growth,” he added.

Mishustin’s cabinet includes many officials known to be prominent advocates of increased state spending. One of them is Andrey Belousov, a former Kremlin adviser and one of the architects of a $400-billion four-year infrastructure development plan known as National Projects. In 2018, he was one of a group of senior officials who urged Putin to significantly increase borrowing to fund the projects. Belousov was appointed first deputy prime minister instead of Minister of Finance Anton Siluanov. The latter is considered to be the architect of the tight-budget policies Russia has followed in recent years. “Keeping Siluanov atop the Finance Ministry, though with less authority, suggests any change, of course, will be incremental,” commented Scott Johnson from Bloomberg Economics.

Minister of Finance and former First Deputy Prime Minister Anton Siluanov is considered to be the architect of the tight-budget policies Russia has followed in recent years. Photo: kremlin.ru

In his annual address to the Federal Assembly on 15 January, President Putin announced proposals to provide new benefits for the poor and families. This could result in spendings of about $65 billion until 2024. In 2020, extra spending could total 2,1 trillion rubles ($34 billion), or 1,3% of gross domestic product, consider analysts of ING Groep NV in Moscow adding that the government will likely tap the National Wealth Fund and also release about 500 billion rubles left over from last year’s budget.

Russia’s 2019 budget surplus of 1,8% of GDP and $500-billion international reserves guarantee the Kremlin ample room to increase spending. However, the double shock of sanctions and collapsing oil prices in 2014-2015 has made Putin wary of borrowing or spending too much money, believes Bloomberg. Although five years of tight fiscal and monetary policy have significantly reduced Russia’s vulnerability to external shocks, they have also constrained economic growth, which hasn’t climbed above 2% since 2012. The expected spending increase is likely to add only about 20-30 basis points to growth in the short term, as it is largely concentrated in social projects.

By Anna Litvina