Russian officials continue to worry about the economic performance in 2013

Russian business daily Vedomosti.ru reports on rising concerns regarding the performance of the Russian economy in 2013. As the Russian Minister of Economic Development Andrey Belousov stated, „We’re not in recession yet, but we might get there. Such a risk exists. …I believe [it might happen] by autumn.“ The Deputy Minister of Economic Development Andrey Klepach recently stated that the Ministry reduced its forecast for economic growth in 2013 from 3.6 percent to 2.4 percent. However, Klepach described the latter figure as optimistic – judging by the GDP performance during the first two months of 2013, the growth for the entire year might be as low as 1.7 percent. Klepach also noted that the growth of 5-6 percent, required by President Putin, is unrealistic in the near future.

The Russian Ministry of Economic Development is expected to propose economic stimulus measures to the Prime Minister Medvedev, whose government is adamant to keep the central government expenditures in check. On the other hand, the Ministry of Economic Development insists that the Government should loosen its fiscal policy and increase capital investments. The Ministry finds it essential that both the Government and the private sector increase investments in the transport infrastructure and economic sectors that rely on human capital – healthcare, education, science. Besides, Klepach argued that certain projects can be performed only by the Government, such as the construction of a modern highway between Moscow and St. Petersburg: “It would have been reasonable to construct the Moscow-St. Petersburg highway during the 15 years of high oil prices, but with the current policies, we won’t see it constructed before 2018. [As things stand now] Someone could write another book titled “A Journey from St. Petersburg to Moscow”*”.  

In addition, the Ministry of Economic Development insisted that the government investments should increase by a factor of between 2-2.7 in real terms by 2020, compared to 2007, in order to diversify the economy. Having spent three months to find the resources, at least on paper, the Government eventually accepted the proposal. However, in reality it turned out that it will be difficult to fund even the current level of expenditures. According to the Higher School of Economics, the central budget might experience a shortfall of 500 billion rubles (USD 16.1 billion; the total central government revenues for 2013 are projected at USD 412.9 billion) in 2013 as a consequence of lower than projected privatization revenues and increased VAT returns.

Experts’ economic growth forecasts for 2013 vary between 2 and 3 percent, with most of the analysts suggesting that the growth will pick up in the second half of 2013 thanks to the contribution of the agrarian sector, which underperformed in 2012, and the economic recovery in Europe. What happens after 2013 is a matter of concern, though: without the increase in productivity and competitiveness, the economic growth could hover around 2 percent, which is grossly insufficient to fix the current state of infrastructure and bring about a noticeable increase in the overall standard of living.  

* – “A Journey from St. Petersburg to Moscow” is a book on the disturbing experience of traversing the road between the two largest cities of the Russian Empire and witnessing the socio-economic conditions at the end of the 18th century. It was written by Alexander Radischev, who was soon proclaimed a dissident and exiled to Siberia.

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