BOFIT Viikkokatsaus / BOFIT Weekly 2019/50

Many Russian officials hope that the elixir to cure Russia’s malaise of low economic growth would be found from the national projects and spending money from the National Welfare Fund. Most economic experts, however, point out that the impacts of these public-sector measures are likely to be limited and transitory. Economic growth driven by public spending could even come at a fairly high cost as one ruble of public spending does not even come close to producing corresponding increase in GDP.

The national projects announced by president Vladimir Putin last year call for a total of roughly 18 trillion rubles (260 billion euros) in budget funding during 2019–2024. This year’s budget allocates 1.8 trillion rubles for national projects. Government officials have been criticised for moving too slowly in applying allocated funds. At the start of November, only 70 % of this year’s funds had been disbursed. Deputy prime minister Konstantin Chuychenko said slow spending was preferred to avoid misuse of funds.

Use of assets from the National Welfare Fund to support the economy has also been discussed, because the Fund has grown substantially in recent years. Under the fiscal rule, the government can access the Fund to support the economy when its liquid part exceeds 7 % of GDP. A pending bill allows spending up to 1 trillion rubles during 2020–2022 on investments in domestic infrastructure and provision of export credit. Funding requests have already been submitted by e.g. Russia’s postal service and state railways RZD, as well as fertilizer giant Uralkali for construction of a plant in Angola.

International and Russian domestic research institutions estimate that national projects could accelerate Russian economic growth by 0.1–0.3 percentage points a year in 2020 and 2021. Even with the national projects, total expenditures of Russia’s public sector will grow slowly in real terms in the coming years. Spending from the National Welfare Fund would increase public spending. Moscow’s Higher School of Economics (HSE) estimates that spending of 300 billion rubles from the Fund next year could speed up economic growth by 0.2–0.3 percentage points depending on the use.