Russia's government approves timid anti-crisis support package

Russia's government approves timid anti-crisis support package
By bne IntelliNews March 2, 2016

Russian Prime Minister Dmitry Medvedev on March 1 approved an anti-crisis support package of RUB685bn ($9.4bn) as the country's oil price- and sanctions-battered economy continues in recession for the second year.

The package was originally proposed at RUB880bn but was cut by 22%, while still having RUB158bn worth of unfinanced measures on the action list.

Meanwhile, RUB462bn (67%) of the final approved package was already drafted in the federal budget for 2016, with the rest representing a muted response to the economic crisis facing Russia.

"Part of the funding is already foreseen in the federal budget and requires slight reformatting," Minister of Economic Development Alexei Ulykayev said earlier.

According to previous reports about the drafting of the anti-crisis package, the government was short of RUB250bn and wanted to tap RUB130bn from the "presidential reserve" accumulated in sovereign funds and effectively sealed to infrastructure investment and spending since 2015.

A source in the presidential administration told Vedomosti that the government has now given up trying to access the reserve, which is under the Kremlin's control.

The plan also scrapped one of the most expensive measures: RUB150bn recapitalisation of the sinking state development bank Vneshekonombank (VEB), which could possibly be pushed over to the second half of 2016.

On February 18, Medvedev instructed the government to finalise the anti-crisis plan, using a stock set of structural reforms to set the mid-term anti-crisis targets: support of SMEs and innovation, support of regional transportation, cutting costs of utility monopolies, improving the investment climate, and reducing red tape in business.

The prime minister also said that apart from short-term measures, the economy would have to be re-oriented on producing and exporting "quality and competitive" goods.

Alfa Bank commented on March 2 that with only RUB160bn being new spending on the support package, the effect of the plan on the overall budget is very modest.

Even incorporating the approved anti-crisis plan into the overall spending volume in 2016, it still appears to be RUB340bn below the originally drafted RUB16.1tn, Alfa estimates.

In the bank's view, this leaves some room for additional spending to be financed in the second half of 2016, with social spending being the most likely candidate to receive an additional boost. 

The government is currently drafting a 10% consolidation of the 2016 federal budget to keep it within the targeted 3% of GDP deficit, after early into the year basic assumptions of the budget ($50 oil, exchange rate of RUB63.3 to US dollar) had to be revised.