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October 24, 2019 No.
8327

Russian Media Outlet Nezavisimaya Gazeta: National Projects Are Becoming An Uncomfortable Topic For The Authorities; State Injections Will Not Reanimate A Moribund Economy

The Russian media outlet Nezavisimaya Gazeta reported that the Russian government takes pride in the surplus budget, drawn up for the new three-year period. The Russian President is said to be pleased with the "stable macroeconomic situation." Consequently, he would like to finance national projects more smoothly, and engage in the "de-bureaucratization" of the decision-making system.

However, Nezavisimaya Gazeta reported that the desire to engage in the "de-bureaucratization" of the decision-making in the Russian economy is an oxymoron. So far – according to Nezavisimaya Gazeta – the authorities are not even trying to provide conditions for free financial flows, and free initiatives.

As for the touted national projects, the lynchpin of Putin's economic program, Russian analysts believe that no official will take responsibility for pouring huge amounts of budget money into half-baked projects. Furthermore, expert opinion believes that without significant changes in monetary and tax policy, the market does not need national projects, since there is no investment demand for their results, and they are not supported by either business or the public.

Below is Nezavisimaya Gazeta's article:[1]

 

(Source: Ng.ru)

The Surplus Budget Became A Topic Of Pride For The Government

"The surplus budget, drawn up for the new three-year period, became the pride [and joy] of the government. The president is also content with the 'stable macroeconomic situation.' True, he also has some wishes e.g. to finance national projects more systematically, to engage in the 'de-bureaucratization' of decision-making. But, as experts note, 'bureaucracy' is not a priority for the government, on the contrary, it seeks to control any financial flows, which precisely leads to dampened private initiative. With a nearly moribund economy, government financial injections may no longer help. This means that national projects risk soon becoming an uncomfortable topic for public discussion.

"At a working meeting with President Vladimir Putin, Prime Minister Dmitry Medvedev spoke about a 'decent margin of safety' for a budget surplus over the next three years. Such a budget, as follows from the prime minister's explanations, becomes the main tool for achieving national development goals and 'solves the problems of ... improving the peoples' living standards, as well as the country's economic development.'

"'In total, within three years - for 2020, 2021 and 2022 - about 7 trillion rubles will be allocated from the federal budget for the implementation of national projects and for the Comprehensive Infrastructure Modernization Plan,' the prime minister said.

"The largest item is the 'social sphere': 'Next year, within the framework of the relevant national projects, our health care spending will double in size: from 160 billion rubles in 2019 up to 320 billion rubles. The allocation for demography policy and education is increasing by more than 20 percent. The financing of science, as well as environmental programs, is growing more than one and a half times.' 'Considerable funds have also been allocated for the implementation of national projects in the economic sphere, for the expansion and modernization of infrastructure, for repairs, road construction, the development of small and medium enterprises, export support, increased labor productivity and all other directions ... from national projects', - added Medvedev.

"The budget is the cornerstone of all monetary policy, 'according to the results of which we can observe a stable macroeconomic situation in the country,' Vladimir Putin said. 'And I hope that in the course of the subsequent discussion with the State Duma deputies we will not lose sight of these basic elements will not be lost, but on the contrary, maybe they will be implemented in the best possible way,' the president clarified.

"True, the head of state also has some wishes: 'So that after the adoption of this main financial document ... in subsequent years, we will focus not only on financing as such - I hope that all this will be implemented – but also the de-bureaucratization of decision-making in order to ensure the sound perfection of financing '.

"Because 'even this year, unfortunately, it doesn't work out the way we originally planned to finance the decisions we made rhythmically and in equal installments.' 'But I am absolutely sure that if we want to implement these national projects, then we need to change many things in terms of ensuring the smooth and timely financing of development goals,' he explained.

The Desire To Engage In The 'De-Bureaucratization' Of Decision-Making In The Russian Economy Is An Oxymoron

"There are in fact many problems. According to the Ministry of Finance on September 13, the cash execution of expenditures on national projects amounted to 47% of annual [budgetary] values. It was decided to transfer 'unutilized money' to the next year so that they would not be 'burned'. Against this background, the budget is executed with a huge surplus: in January-August, the surplus exceeded 2 trillion rubles and amounted to 3.7% of GDP.

"The Accounts Chamber reported that the level of execution of federal budget expenditures for the implementation of national projects and for the comprehensive plan in the first half of 2019 was 10 percentage points below average and amounted to 32.4%. According to the auditors, the money allocated to the regions by the Federal Center was [only] 18.5% utilized.

"According to the monitoring results of the Accounts Chamber (as of September 20), for three out of nine national goals indicators for measuring their success or failure have not yet been determined. For four goals, we are literally rolling backwards: this is true for sustainable natural population growth, sustainable growth in real incomes of citizens, decreasing the poverty level twofold and accelerating economic growth. By the way, such problems were identified by the department of Alexei Kudrin at the beginning of this year, but so far the situation has not improved, on the contrary, it has worsened. But we are talking about those goals of national development, for the achievement of which national projects were invented. That is, as we see, the system spins its wheels at all stages: starting from setting unverifiable goals or, apparently, unattainable goals in the current conditions and ending with poorly developed action plans."


Alexei Kudrin (Source: Duma.gov.ru)

"The desire to engage in the 'de-bureaucratization' of decision-making in Russian economy is to combine the incompatible – an oxymoron. So far, the practice is such that funds from the economy are legislatively withdrawn, and then channeled by arbitrary decision to the priorities chosen by the authorities. And all this is dubbed that very same 'macroeconomic stability', which, as previously explained by the finance-related cluster of government, is easy and dangerous to lose. From the sideline it appears that the authorities are not even trying to provide conditions for free financial flows, for verifiable initiatives.

"'Our economic and political power is concentrated in a narrow circle, big business is either embedded into the state, or show complete loyalty in order to continue to work normally. Social elevators are frozen. Advanced talents, with rare exceptions, are leaving,' explained Oleg Vyugin, professor at the Higher School of Economics, in an interview with Forbes. - Efficiency stagnates, because there is a large sector where capital is gained not under equal competition, but via relations and accessibility. Why has such a system arisen? It has one very good quality - the ability to control financial flows and ensure political stability.'

State Financial Injections In The Form Of National Projects Are Unlikely To Revive The Economy

"Will state financial injections in the form of national projects help revive the economy? Also unlikely - say some analysts polled by Reuters. 'None of the officials will take responsibility for pouring huge public money into ill prepared projects. It is impossible to prepare a program for the development of such serious resources in such a short time,' explains Kirill Tremasov, director of the Loko-Invest analytical department. 'The Russian economy itself is incapable of ensuring high growth rates even with large government investments,' said Vladimir Tikhomirov, chief BCS economist.

"And the less the breakthrough successes will be in implementing national projects, the more uncomfortable this topic will become for public discussion. An analogy can be drawn with the goal set by the president at the end of 2014: to reach economic growth rates above the global average. Based on past promises, this goal should be achieved literally now - at the turn of 2019–2020. But in the forecasts of the Ministry of Economic Development and the International Monetary Fund, Russia does not show any average global growth rates. And now, from the high podiums, almost nothing is heard about this goal. It just was rewritten again - in the new May decree of the president. And we are facing another failure to achieve it. If the same thing happens with citizens 'incomes, with a natural population growth, with plans to halve the poverty level, with a technological breakthrough, etc., then all national projects will need to be 'forgotten', otherwise mentioning them will cause reputational damage.

"Experts, interviewed by Nezavisimaya Gazeta, also voice their doubts about the saving effect of national projects. 'In the absence of significant changes in monetary and tax policy, the market does not need national projects, there is no investment demand for their results, they are unsupported by either business or the public, we can observe only harsher conditions for consumer activity,' says Alexander Osin, an analyst at Freedom Finance. 'Here, and not in bureaucratism lies the reason for the stalling of projects. Rather, bureaucracy itself is the result of a lack of demand.'

"'National projects are for the most part goals, activities, and funding levels. However, there is no intermediate link - the transformation of goals into tasks and the development of mechanisms for their implementation. Therefore, it is likely that money will be allocated, events held, everyone will report how much money has been spent, events held and participants involved. And they will stop there, the set goals will not be achieved,' fears Professor Ustyuzhanina, professor of the Russian Economic University.

"'Such a risk exists that state investments will become one-time injections, and of course they will be unable to radically change the situation,' says Natalya Milchakova, deputy director of the Alpari center. But, as the expert clarifies, the state could change the situation 'due, for example, to a change in tax policy or the creation of more favorable conditions for the influx of foreign investment'.

"Granted, some experts believe that the criticism of national projects is not completely justified. 'The fact is that when starting such large projects on such a colossal scale of social changes that they imply, the performers of course will inevitably encounter incomplete information, uncertain goals and metrics, and large amounts of budget money that are very difficult to master effectively,' explains Ilya Zharsky, managing partner of the Veta expert group. It follows from the expert's comment, that the main thing is for the performers to learn from mistakes and further improve their work and raise their efficiency."

 


[1] Ng.ru September 23, 2019. The article was written by Anastasia Bashkatova.