BOFIT Viikkokatsaus / BOFIT Weekly 2020/05

Russia’s new cabinet is led by prime minister Mikhail Mishustin, former director of the Federal Tax Service. Anton Siluanov, a proponent of tight fiscal policy, remains at the finance minister post. Perm regional governor Maxim Reshetnikov heads up the economic development ministry. Presidential economic adviser Andrei Belousov takes over as first deputy prime minister in charge of e.g. economic issues. A number of former cabinet ministers, including former economic development minister Maxim Oreshkin, have moved over to positions in the Presidential Executive Office.

Despite the snap cabinet shake-up, market reactions to the new government were quite mild. The new cabinet is not expected to push any major economic policy changes, although the state’s purse strings are expected to loosen slightly. In line with the priorities laid out in president Vladimir Putin's January speech, prime minister Mishustin has raised improving social conditions and promoting national projects as key tasks of the new government. Both Putin and Mishustin have emphasized, however, that stability and building up financial buffers to deal with shocks remain essential economic policy goals as they have in recent years.

The finance ministry estimates that the cost of planned socio-economic support measures this year will amount to around 400 billion rubles (nearly 6 billion euros or about 0.4 % of GDP) and then increase gradually but notably through 2024. It is still unclear what amount of this translates into actual increases in budget spending. Russia can afford to increase federal government spending a bit as the budget framework for the next few years is been designed to generate small surpluses. Moreover, some allocated budget spending of previous years has not been used, so some retained funds are available. The large increase in the National Welfare Fund over the past couple of years has also eased the need to set money aside.

The planned spending increases should support slightly higher economic growth in Russia in coming years. The new government, however, is not generally expected to move ahead with significant structural reforms that would promote long-term economic growth. A key limiting factor on Russian economic growth is its economic system that is based on weak institutions. No significant changes in the current economic system are on the horizon.