Putin Discusses Russia’s 2022 Economic Policy: Analysis

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The Russian President Vladimir Putin held a Ministerial-level discussion on the development of the Russian economy last Thursday. (February 17, 2022).   Taking part in the meeting were Prime Minister Mikhail Mishustin, First Deputy Prime Minister Andrei Belousov, First Deputy Chief of Staff of the Presidential Executive Office Sergei Kiriyenko, Deputy Prime Minister and Chief of the Government Executive Office Dmitry Grigorenko, Presidential Aide Maxim Oreshkin, Minister of Economic Development Maxim Reshetnikov, Minister of Finance Anton Siluanov and Central Bank Governor Elvira Nabiullina.

We provide translated text and commentary below:

Putin: “Colleagues, good afternoon. We are starting a series of meetings to prepare this year’s Address to the Federal Assembly. This is a large, complex and substantive job, which needs to take into account a number of important aspects. This is a team project of course, because although the President is the one who announces the decisions we have prepared, says what needs to be done and how to achieve our goals, it is our joint task.

I suggest we begin by analysing the overall macroeconomic picture and consider an updated economic forecast for the next three years. We will discuss their impact on the implementation of current government projects and programmes, as well as on the launch of new initiatives.”

RB: Discussions for a three-year plan, 2022-25

Putin: “I must say that the Russian economy fared well last year amid the difficult global situation. According to the Ministry of Economic Development, the country’s GDP grew by 4.6 percent, which means the national economy not just fully compensated for the 2020 decline, but exceeded the pre-(Covid) crisis level.

Unlike many other leading economies, Russia has normalised its budgetary policy. Last year, the federal budget ended with a surplus equal to 0.4 percent of GDP. As a reminder, a year earlier, we ran a 3.8 percent deficit.

The country’s non-oil and gas revenues amounted to 16.2 trillion rubles (US$209 billion) last year. Fourth quarter revenue exceeded the forecast the Government had enclosed with the federal budget law by more than 20%. This positive trend has continued into this year: in January, non-oil and gas revenues were 27% higher than a year earlier.”

RB: The Russian economy is diversifying away from pure energy exports, with agriculture especially a huge growth market. Russia is now the worlds largest grain producer, while exports of minerals, diamonds and gold have all increased along with IT, machinery and equipment.

Putin: “Let me emphasise that with steady revenues, we will be able to address current problems and meet targets, as well as take new, additional measures to develop the economy and infrastructure, to strengthen the social sphere and support Russian families.

At the same time, it is important that budget planning be systematic. We need to continue to apply the budget rule – I am making a point of saying this to emphasise – to ensure a balance of public finances and the stability of key macroeconomic indicators.

I would like to specifically point out that inflation has recently become a serious challenge for most countries. In Russia, consumer prices accelerated by 8.7% year-on-year in January, which is noticeably above the target. However, the situation in the so-called developed market economies is not much better either. For comparison, in the United States, inflation reached 7.5% in January, much higher than market expectations, and in the eurozone, 5.1% from a year ago. This is a serious challenge for those countries.”

RB: Serious domestic inflationary concerns remain, however it is common for Russia to compare its performance with the United States and European Union.  Both are far stronger than the Russian economy and better able to weather economic bumps. It is telling that Russia generally sees itself on a par with these two markets even though it is far from being so.

Putin: “Nevertheless, we need to take effective measures to reduce inflation in our country. Both the Government and the Central Bank should certainly play a significant role here, with the latter maintaining a responsible approach to the implementation of its monetary policy.

It is important to coordinate the efforts of the Central Bank and the Government and do so, of course, with due regard for the Central Bank’s statutory authority and the effect this might have on business and investment activities; these joint efforts should further the objective of removing external and internal factors behind inflation.

Rising prices primarily eat into people’s income, having an adverse effect on families’ well-being. Due to additional budget revenue, we have taken a decision to provide targeted support to the most vulnerable among us. We have made one-time payments to pensioners and families with schoolchildren and have additionally adjusted pensions, the minimum wage and the subsistence rate to account for inflation. We have adjusted maternal capital to reflect the real inflation rate.

I would like to remind you that this year people’s real disposable income is expected to increase by at least 2.5 percent. This is a benchmark set for the Government and this objective must be achieved without fail.”

RB: Strong emphasis on the domestic situation as concerns the Russian voters.

Putin: “In this connection I would like to note that rising incomes should be ensured not only by effective social support measures but primarily, of course, by economic growth, as you and I both know. This is a key condition for achieving objectives in the social sphere.

It is important to assess the situation objectively. Clearly, last year’s positive economic dynamics can largely be described as recovery and experts say that the potential for growth of this kind has been fully tapped. Under these new circumstances it is important to ensure sustainable long-term development to boost, so to speak, the potential growth rate of the Russian economy. The Government has been assigned this task and today we will talk about progress in accomplishing it.

I would like to emphasise that we need to ensure broad-based development in all sectors of the economy and in each region of the country, which has to produce tangible results: improved well-being of the people and better quality of life all round, including the state of the urban environment, the environment in general, education and healthcare. In this context, I would also like to specially mention the objective of making quality healthcare services accessible everywhere in the country.

We will soon discuss likely supplemental decisions on this and other matters at our next meetings.”

RB: No explanations given about how Russia will achieve these goals or what policies have been put in place to support them.

Putin: “Now let us move on to our agenda. I would like to give the floor to Minister of Economic Development Maxim Reshetnikov.”

Reshtnikov: “Mr. President, Let us sum things up and conclude our meeting today. As I have said, today we have our first meeting as part of drafting the Address to the Federal Assembly. What would I like to add to this? The Address to the Federal Assembly is not just a speech delivered by the head of state for the entire country, for the nation, promising some bonuses, additional benefits and solutions to social problems in the broader sense of the word. We will have to show the direction in which the country’s development is headed, as well as its economy, and the basis for addressing the main task: improving the well-being of our citizens, which is the most important thing.

In this context, I would like to elaborate on a few things.

First, it is obvious that a certain amount of time has to pass between the decision to launch a project and its actual implementation, as Mr Mishustin just said, as well as his colleagues during our discussion today. Of course, timely decision-making is necessary, or we will not launch some projects at all or never see them completed. The example from the sphere of infrastructure was right and fair: it may take a year, or two, or five, seven, even ten, depending on the project. And we have some grand projects designed to take many years.

We have to carry out the preparations in advance, of course, so that we will not find ourselves in a situation where funding is allocated on an emergency basis, which leads to the outcome mentioned by the Governor of the Central Bank. We saw a lot of examples at the end of last year, which Ms Nabiullina has mentioned. Let me repeat that we must avoid such situations.”

RB: References to poor intra-Ministerial co-ordination leading to emergency measures having to be taken when better planning would have foreseen fiscal problems.”

Reshtnikov: “This brings me to my second point: precision and objectivity in forecasting the revenue portion of the federal budget is the ultimate priority. It is hard to disagree with the Ministry of Finance. I see that there are a lot of factors creating uncertainty and it is difficult to foresee everything. But still, it is necessary to take prompt and timely action to make certain necessary, correct, and justified adjustments. This is required to make informed, systemic decisions.

I would like once again to use an example from last year, when just three months before its end, in September, the amount of oil and gas revenue was being projected. By the way, we can return the ball to the Ministry of Finance here. At the end of the year, actual receipts turned out to be significantly higher, by a full trillion rubles (US$12.9 billion).

Thirdly, it is important for us, of course, to maintain a conservative approach to state finances. What do I mean? We will continue to observe the budget rule which ensures the balanced growth of government spending. But let me repeat: of course, the budget rule must be followed systematically, based on objective estimates of expected revenue.

Let me remind you here that last September we agreed that the practical implementation of the budget will correspond to the goals we set. This will make the situation more predictable for the Central Bank.”

RB: References to poor budgetary planning, indicative of Ministers and Russia’s SOEs not wanting to set goals too high and be rewarded for better performances. It appears this will now be better monitored.

Reshtnikov: “Now regarding the proposal of the Economic Development Ministry for a new and better defined procedure for adding funds to the Government’s Reserve Fund. I understand there is definitely a logic to introducing it; our colleagues have said as much. But let us agree with the Finance Ministry for the time being: we will not do this hastily right now – rather, we will see how it can work and, during our subsequent discussions, we will see if this move is justified and if this needs to be done at all, all the more so as the Finance Ministry believes that existing mechanisms suffice.

Now regarding the evaluation of additional revenue. Some of our colleagues say that a trillion rubles can be allocated for this purpose – some quote a slightly higher figure, others a lower one. They say the budget will receive 1.4–1.5 trillion rubles in additional revenue, the Finance Ministry says it will be one trillion and, accordingly, is guided by this figure in calculating the amount that we will have to allocate in one way or another in order to meet our social obligations – growing social obligations due to changes in the economic situation in our country and around the world.

These are questions that we, of course, have to consider before taking a final decision. I will repeat that this is our first effort. I know you have planned to continue this work in the Government. I ask you to coordinate your efforts and think through all potential risks and scenarios of how the situation may evolve.”

RB: Lack of clarity and objective thinking at Ministerial and Economic Policy levels.

Reshtnikov: “But, of course, I have to agree with what my colleagues said: in the social sphere, we always need to be thinking about solutions and moving towards resolving one of the most important issues, I mean, of course, fighting poverty. As for economic development in general, of course, attention needs to be given to infrastructure projects, which have always been important and are even more important in the current circumstances. Mr Mishustin is absolutely right about this and it is important to not miss the right moment for taking a decision.

I would like to thank you. Even before our next meeting – it is scheduled for next week, if I am not mistaken – I will talk, in the regular course of work, with the Prime Minister in private, so to say, and with some of my colleagues from the Finance Ministry, the Ministry of Economic Development and the Central Bank. I would like to ask each of you, after the discussions you have and I will stay in touch with you in one way or another – to present your viewpoint to me as well before the next meeting. Thank you for the work done today. All the best to you.”

RB: Nothing significant to report in this meeting, other than there was no reference to the situation in Ukraine, suggesting no immediate policy issues are being prepared. Other meetings are scheduled to be held in private, signifying decision-making is restricted to the very top, command-economy style.   

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