March 31, 2023 Special Dispatch No. 10546

As Russian National Deficit Grows, Government Seeks To Persuade Citizens To Voluntarily Extend It Long-Term Credit

March 31, 2023
Russia | Special Dispatch No. 10546

Russian news agency Interfax reported that based on preliminary data, Russia's federal budget had exceeded the 4 trillion-ruble mark as of March 28, 2023. [1]In other words, in just three months, the deficit has already exceeded the amount approved in the budget law for all of 2023.

This budgetary gap, created by decreasing energy revenues and military expenses, was predicted by Igor Nikolayev, Head Researcher at the Institute of Economics of the Russian Academy of Sciences.[2] He also accurately predicted that the Russian government will demand that businessmen and other citizens cough up funds to reduce the gap.[3]

Victoria Pavlova, writing in the Moscow newspaper Noviye Izvestiya, anticipated that Russian Finance Ministry efforts to persuade Russia's citizens to purchase bonds to defray the costs of the Ukraine war and government development projects, would encounter headwinds, as Russian citizens still recall government defaults during both the Soviet era and under Boris Yeltsin, when state bonds were a success, since they offered a low yield and were unattractive in comparison with corporate bonds. Pavlova therefore predicted that at some stage, the government would have to drop the pretense of voluntary schemes and begin effectively forcing exactions from the public. She wrote:

"[Finance Minister] Anton Siluanov finds himself between two fires: it is impossible to increase the deficit indefinitely, and it is also dangerous to print money, to borrow from businesses in the desired volumes. We will not be surprised if the government returns to the idea of borrowing from the population. It is possible that it will be forced. The experience of the USSR is known, there are more than 60 million state employees in Russia — there are all the necessary conditions for grazing [upon the public] in a grand style."[4]

A more recent article in Nezavisimaya Gazeta, titled "The State Will Take a 15-year Loan from Citizens," describes government schemes to entice the public into putting their money into long-term savings programs on a voluntary basis, saying doing so will be a hard sell given the gap between the offered yields and current inflation. Given the economic uncertainty, it will also be a stretch to ask Russia's citizens to part with their money for 15 years as the finance ministry envisages, it said.

Below is Nezavisimaya Gazeta's description of the Russian Finance Ministry proposals and why voluntary citizen participation is highly unlikely:[5]

Russian Government bond (Source:

"Russian officials have come up with a new way to get at the savings of Russians. After abandoning quasi-voluntary pension savings, the Ministry of Finance is now offering a "long-term savings" program. The head of the Ministry of Finance, Anton Siluanov, is sure that this innovation will allow [citizens] 'to not just keep money under your pillow or in the bank, but gives you the opportunity to securely invest this money and use additional opportunities to generate income.' The interest of officials is understandable: the country allegedly lacks 'long-term money'. However, many citizens realized that it was too risky to give the state their hard-earned money on promises of future benefits. After all, the state cannot even protect its own assets from inflation and devaluation. In a stagnant economy, mass savings while maintaining purchasing power are practically impossible.

"As a priority task, Finance Ministry officials announced the development of financial apparatuses that will allow citizens to create long-term savings and attract long-term funds to the domestic economy. Among the various apparatuses that may improve citizens' wellbeing, emphasis was placed on a program for long-term savings for the populace.

"Anton Siluanov's department [the Ministry of Finance] promises that participation in the long-term savings program will be voluntary and will allow Russians 'to have a financial resource that can be allocated to long-term strategic purposes in the future.'

"The new proposal by Finance Ministry officials is remarkably similar to previous ideas of involving citizens in voluntary and semi-voluntary pension savings programs. The difference is that this time, the word 'pension' has been removed from the explanation of the program's essence. However, the pension-like characteristic of the program is obvious, as one of the conditions for receiving payments is reaching retirement age.

"'It's assumed that the contract will be made for a minimum term of 15 years. Nevertheless, payments can be received earlier: upon reaching the age of 55 for women, the age of 60 – for men,' explained Deputy Finance Minister Alexei Moiseyev.

"This same official has for years been putting forward a variety of 'savings' programs dubbed 'individual pension capital' or 'non-state pension allowance.' None of these projects have worked. But the federal budget continues to lavish money on more and more inventions of Ministry of Finance officials.

"Citizen participation in the program is envisioned to be 'exclusively on a voluntary basis' and prescribes the conclusion of a long-term savings contract with a non-state pension fund (NPF), explained Moiseyev. According to him, citizens will be provided with an opportunity to transfer already accumulated funds from one NPF to another without loss of investment income.

Deputy Finance Minister Alexey Moiseyev (Source:

"The Ministry of Finance is aware that there is practically no economic motive for citizens to contribute their money to the non-state pension fund system. That is why officials promise citizens additional budget payments and benefits. In other words, an agreement to transfer money to the NPF received from a citizen will be paid by the budget, at the expense of taxes paid by other taxpayers. Nezavisimaya Gazeta has already written about such projects to take money from poor Russians in favor of the rich.

"It will be possible to receive a single tax deduction for long-term savings of up to 400,000 rubles, promised the Finance Ministry. Contributions under the program will be co-funded by the state, which guarantees the safety of savings:

"According to the Finance Ministry, savings insurance will amount to 2.8 million rubles, which is two times higher than that of [citizen] bank deposits.

"'Thus, with the passing of this program, Russian citizens will get a means to create a reliable source of income, which will be secured by the state. The latter also provides supplementary financial support,' Siluanov's department stated.

"At the end of last year, the Ministry of Finance announced the development of a long-term savings program. The new measure would allow 'citizens to receive additional (in relation to other state benefits) income after retirement.'

"The savings are to come from voluntary contributions, maternity capital, and the money citizens had accumulated as a cumulative part of their pensions [which usually consists of a base minimum provided by the state] and [the citizen's own] 'savings.' According to officials' assurances, citizens' money will be invested in federal loan bonds (OFZ), infrastructure bonds, corporate bonds, and 'other securities.'

"Russians will have to believe that their welfare is the main goal of Finance Ministry officials. However, the head of the ministry, Anton Siluanov, has previously said that the task of authorities is to find sources of financing. 'The priority tasks for the near future are to improve the citizens' living standard and quality of life, as well as to promote sustainable economic growth. In order to accelerate the transformation of the Russian economy, domestic sources of investment financing will be needed,' said the official.

"'The question is quite simple: where to acquire money for economic development? The financial market is one of those sources that was not used to its full potential in previous years. And now it is becoming very relevant, so this too meets the interests of citizens, who will be able to participate more actively in the financial market by buying reliable guaranteed Russian assets... It also meets the interests of businesses and enterprises that can more easily issue financial instruments to increase production and create new job places,' elaborated the Ministry of Finance chief.

First Deputy Prime Minister Andrey Belousov also drew attention to the shortage of 'long-term capital' in the economy on Wednesday.

"'Capitalization of the Russian financial market (in 2022 – 'NG') compared to the previous year decreased by almost 39%, while the volume of trading — by 41%... The shortage of 'long-term capital' has been aggravated, due to, inter alia, the withdrawal of foreign investors [from the Russian financial market],' stressed the official.

"Today's long-term savings program is hardly the first proposal by the authorities designed to somehow 'lure' the population into financing the economy. The Ministry of Finance and the Central Bank spent several years deliberating on the idea of an 'individual pension capital (hereafter – the IPC).' Back then the stumbling block was the issue of citizens' forced participation. It was proposed to withhold money from citizen salaries (in fact, it was a 'pension tax' levied on a so-called 'auto-subscription basis' (see 'NG' article from June 17, 2022).

"Later, the same officials began discussing a new cumulative pension system project: the Guaranteed Pension Product (GPP), which was later renamed the 'Guaranteed Pension Plan.' However, these plans remained on paper. Last year, Elvira Nabiullina's office [the Bank of Russia] proposed encouraging citizens to save long term through tax incentives and budget surcharges.

"Experts doubt that the Ministry of Finance's new initiative will interest a significant part of the population. 'The existence of a substantial part of the population that enjoys the level of income and a 'savings cushion' for the next year or two, who can save for such a long period [15 years] is unlikely,' said Olga Belenkaya, Head of [financial services company] Finam's macroeconomic analysis department. 'Such a program may be in demand among a limited number of citizens,' argued Ksenia Bondarenko, a Senior Lecturer at the Higher School of Economics. The proportion of citizens able to allocate money for savings can increase only if real income growth resumes, argued Artem Golubev, Associate Professor at the Russian Academy of National Economy and Public Administration.

"It is not clear why citizens should now be interested in shelving their money for 15 years, argued TeleTrade analyst Alexei Fedorov. 'The exclusion of the term 'pension' from the title of the proposal can be explained as an attempt to overcome citizens' negative attitudes towards any pension innovations (especially after the retirement age was raised). Many citizens also remember quite well the 'freezing' of their pension savings [accumulated part of pensions],' said the expert.

"It is telling that the authorities have not created effective mechanisms for the population to save and increase their capital over the recent years, while existing forms of savings remain unprofitable. For example, according to the Central Bank, funds in NPF accounts increased by 21.7% from 2017 to 2021, while the accumulated inflation exceeded 25%. That is, the purchasing power of pension savings allocated to private funds decreased by 3.4% (see "NG" article from August 21, 2022). By the end of the nine-month period of 2022, the NPFs' profitability was 3.4% with inflation at 10.4% (according to Central Bank data).

"According to experts, launching [new] long-term savings programs should begin by analyzing the effectiveness of previous ones. 'There already was a co-financing program for pension savings, which started in 2008 and was closed to new entrants in 2014. There already were contributions to the cumulative pension system, which remain frozen since 2014,' argued Belenkaya, suggesting that potential investors may have an issue of confidence in the new system. 'Especially since such a long investment period (of 15 years) is envisaged, while the uncertainty of economic forecasts is quite high. Although the program is designed for the long term, the economic situation is changing quite significantly and one cannot rule out that after five years the terms of this program will change, perhaps not in a good way for the investor,' argued the expert.

Olga Belenkaya (Source:


[1], March 29, 2023.

[4], March 17, 2023.

[5], March 29, 2023.

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