Comments on the state of the Russian nation: not so well off after all

It was probably to be expected that the report „Farewell, poverty“ published by the Moscow’s Center for Strategic Research last week, as well as occasional articles in the foreign press admiring the commercial bustle of large Russian cities, will provoke a response or two in the Russian media. Russian business daily Vedomosti  warns that the impressive statistics on consumer spending in Russia should be complemented with figures indicating explosive growth of consumer lending. During the last 12 months, the total volume of consumer lending increased by 42.3 percent compared to the same period last year, a pace comparable only to that of the last pre-crisis year, when the increase in consumer lending represented a staggering 55.8 percent. The editorial in Vedomosti disagrees with using the number of TVs and PCs as an indicator of prosperity and invites the reader to focus on the housing and healthcare issues in Russia. According to the article, more than 61 percent of Russians live in very modest housing conditions, with between 7 and 30 square meters per person, a figure that has not changed significantly during the last 20 years. Given that the average price of square meter in major Russian cities represents a multiple of respective average salaries, it is unlikely that the statistics will change dramatically in the coming years. Healthcare is a burning issue, not only due to a lack of funding (see below), but because of the statistics indicating an increase in the number of registered medical conditions by 18 percent during the last decade.

The postponed pension reform also provoked a series of debates and analyses in the media. It seems that closing the deficit of the government pension fund was not the only reason behind the idea to transfer a larger part of contributions that currently flow into individual pension saving accounts back to the government fund (the Government plan involved a reduction of such contributions from 6 to 2 percent of the gross salary; total pension contributions paid from the gross salary in Russia are currently at 22 percent, with a certain cap limitation). Russian daily Kommersant writes that the private pension management funds did not perform all too well – their average performance in 2011 was in the negative by 1.7 percent. Even the largest private pension fund manager, government-owned Vneshekonombank (VEB,, generated a return below inflation in 2011 – 5.47 percent, compared to an inflation of 6.1 percent. However, its results for 2012 look a bit brighter, and the real return on private pension fund’s assets managed by VEB is expected to be positive. VEB itself is against the reduction of the private component of pension contributions, as it will make long-term investing more difficult for the fund managers. The bank stated that it generated a real return of 149 percent on the private pension funds’ assets under its management from 2004-2011, significantly exceeding the inflation of 115 percent in the respective period.

Healthcare is another budget-related issue that could easily dwarf the problem of the pension fund deficit. According to Vedomosti, Russian Minister of Healthcare Mrs. Veronika Skvortsova presented a healthcare development plan for the period ending in 2020 that considers two scenarios – the one involving conservative spending and the other providing for modernization of the healthcare sector. While the former doesn’t provide sufficient funds for the implementation of Vladimir Putin’s election agenda, the latter requires the central Government to more than double the healthcare-related funding in the respective period. That said, the central government budget is not the primary source of funding for healthcare: of the total healthcare-related spending of approximately 2 trillion roubles in 2011 (USD 63.1 billion, approximately 3.3 percent of the GDP), only 16 percent came from the central budget, while the balance was funded by the local government budgets and mandatory health insurance fund. The conservative scenario predicts a reduction of healthcare funding to 2 percent of the GDP by 2020, but the Ministry of Healthcare argues that the funding should be increased to 4.7 percent of the GDP by 2020 in order to catch up with the developed countries, where the average healthcare expenses add up to 7 percent of the GDP. The ultimate argument for doubling the central government healthcare funding in the respective period can hardly be debated, as it is expressed in terms of forecasted saved lives. While presenting the program, Skvortsova warned Prime Minister Dmitriy Medvedev that the required increase in central government funding is expected to save 1.1 million lives by 2020. While Prime Minister Medvedev supported the scenario involving increased government funding, he asked the Ministry of Healthcare to consider the possibility of private sector investments in healthcare. First Vice President of the Government Igor Shuvalov was quoted saying that Russia will not experience the benefits of modern medicine unless all stakeholders increase healthcare-related expenses.



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