Putin’s national plans will hardly boost Russian economy, study finds
Russia’s frenzy of gigantic infrastructure spending over the next few years will do little to spur the sluggish growth of the Russian economy, economists have warned.
A new study by consultants at Oxford economy discovered that the country’s $ 400 billion in six-year national projects program will lead to an increase in annual GDP growth of only 0.1 to 0.2 percentage point.
If the program fails to meet its ambitious spending targets, the short-term net impact could be wiped out by the tax increases the government has introduced to pay for it, the research added.
National projects are President Vladimir Putin’s flagship economic policy of massive infrastructure investment and economic modernization, designed to revive the Russian economy and boost its low growth rate. It was announced last year after Putin’s re-election for a fourth and final presidential term.
Tackling Deep Rooted Economic Problems in Russia weaknesses, however, Evghenia Sleptsova, senior economist at Oxford Economics who led the research, said: “National projects are not a breakthrough for Russia’s growth model, as long as institutions continue to constrain productivity and population of working age is declining. Russia is always looking for growth in the wrong places.
By increasing the value added tax (VAT) to finance the investment campaign, the government has hit Russian consumers in the pocket and therefore reduced the potential of domestic projects to spur growth across the economy. , Sleptsova said.
Earlier this year, the government hike VAT from 18% to 20% in a move that is expected to raise an additional 600 billion rubles ($ 9.4 billion) for state coffers.
As a result, the impact of additional government spending this year will be “close to zero,” the study warned.
The slow The implementation of national plans could further dampen Russia’s growth, Oxford Economics has warned. In the first three quarters of 2019, only half of the funds budgeted for national projects had been spent, according to the government’s own data.
Sleptsova added: “So far the overall package has been a drag on GDP rather than the expected stimulus. The implementation delays limited the positive impact of spending, while the VAT increase – who finances these spending plans – has acted as a brake.
If investment levels do not reach 80% of their target over the remainder of the six-year program, the benefits of economic growth will effectively be offset by the losses to the economy from the increase in VAT, adds the study. Assuming all spending goes as planned, the increase should be a ‘measly’ 0.1 percentage point in 2020 and 2021, then 0.2 percentage point per year through 2024.
Analysts have consistently pointed out the government’s over-ambitious spending target of $ 400 billion on national projects, a third of which is supposed to come from the private sector. However, Chris Weafer, head of Macro Advisory, said the program “makes more sense” and becomes more realistic if viewed as a longer term investment program over nine or ten years, rather than one. five-year spending spree.
In the best-case scenario, if the investments generate returns above expectations for the entire economy, Russia’s growth rate could increase by 0.4 to 0.5 percentage points at most per year, a added Oxford Economics.