Russia ‘needs deficit to boost growth’.
Russia will need to run a budget deficit over several years to boost its economic growth rate, according to a long-term economic development plan drawn up by its Economy Ministry.
“Every economist always says that it’s better to have a deficit-free budget … but that’s a banality,” Deputy Economy Minister Andrei Klepach said in remarks released for publication on Friday.
A limited deficit was needed “to make a breakthrough from the point of view of the rate of growth, its quality, and how to finance it,” he told a briefing on his department’s latest scenario planning for Russia’s economy through to 2010.Klepach, the government’s chief economic forecaster, put the size of the desirable deficit at 1.5-2.0 percent of gross domestic product.
The remarks highlight policy differences between the Economy Ministry, which advocates higher government spending to improve infrastructure and human capital, and the Finance Ministry, which is seeking to impose a tight limit on government borrowing and cut overall spending.The ministry’s forecasts, requested by Prime Minister Vladimir Putin, are intended to provide the basis for Russia’s long-term economic development strategy.
The plan will be considered by the Cabinet later this month, just before Putin’s inauguration as president on May 7 marks the start of his new six-year term in the Kremlin — during which he will seek to boost flagging economic growth and reduce Russia’s worrying dependence on commodity exports.A year ago, Putin told the Economy Ministry to redraft its original forecasts, after Russia’s then-Finance Minister, Alexei Kudrin, launched a withering attack on them.
Kudrin said that the previous forecasts had “no right to life”, after the Economy Ministry proposed running an average budget deficit of 2-3 percent until 2025, and raising government debt above 30 percent of GDP.
Kudrin’s successor as Finance Minister, Anton Siluanov, has also vowed to maintain a tight grip on government finances.
In the revised forecasts, the Economy Ministry has scaled back the size of the government borrowing that it believes is necessary to finance economic modernization to show total government debt not rising above 25 percent of GDP.
But the plans still appear to conflict with the position of the Finance Ministry, which is lobbying for new budget rules that would limit annual borrowing to 1 percent of GDP, and cut federal expenditures by 2.5 percent of GDP by 2016.In contrast, the Economy Ministry’s preferred development scenario envisages total government spending rising from 37.1 percent of GDP in 2011 to 38.4 percent of GDP in 2015, and 37.8 percent of GDP in 2020.
Even if Russia succeeds in diversifying its economy, the boost to economic growth would be modest, the Economy Ministry’s forecasts showed.
Under its preferred innovation-based scenario, the Ministry forecasts average annual economic growth of 4.4 percent until 2030 — similar to the 4.3 percent growth achieved in 2011, and below growth rates of 7-8 percent that Russia achieved before the 2008 global financial crisis.
“We have reached a new stage where we don’t forecast significant growth in the extraction and export of hydrocarbons,” Klepach said.
“Growth will be formed through a significant rise in accumulation of capital — investments in science, education and health.”Under a more pessimistic scenario, in which Russia fails to diversify its economy away from energy, growth would slow further, averaging 3.5 percent until 2030, the forecasts showed.
Publication of the forecasts comes a few days after the Economy Ministry downgraded its 2012 economic growth forecast to 3.4 percent from 3.7 percent, reinforcing fears that Russia’s economy is losing momentum.