Market Overview

Russia to scale down state support for the economy in 2021

Russia will scale down its state support of the economy in 2021, eyeing rising costs on servicing burgeoning state debt in the fallout of its response to the COVID-19 pandemic and the collapse of oil prices, Finance Minister Anton Siluanov said.

Running out of options to bolster public finances, Russia has more than doubled its domestic borrowing in 2020, raised some taxes and increased state spending as it relaxed its budget rule that shields the economy from external shocks.

Russia’s extra state spending to support the economy this year reached 4.5% of gross domestic product and will shrink to 1% of GDP in 2021, Siluanov told reporters in comments cleared for publication on Tuesday.

Still, the state development bank VEB may buy into preferred shares of the state-run Russian Railways to provide the latter with the funds for its investment programme, Siluanov said.

Siluanov shrugged off the World Bank’s suggestions that Russian authorities can opt for a more gradual fiscal consolidation than currently planned.

“If we continued the same policy as this year, we would pull out the money from the economy… We can’t withdraw all the liquidity from the market and finance spending,” Siluanov said.

The finance ministry raised nearly 5.3 trillion roubles ($71.89 billion) by selling OFZ treasury bonds on the domestic market in 2020, with the bulk of bonds purchased by major banks which dented rouble liquidity levels in the interbank system.

Russia has to return to the budget rule in 2022, Siluanov said, referring to the budget system praised by the IMF and the World Bank.

Russia to scale down state support for the economy in 2021, Reuters, Dec 29

Article Rating