Russian government spending on national projects runs low, but 2H20 should see boost.

Russian government spending on national projects runs low, but 2H20 should see boost.
Spending on Russia's 12 national projects was only 28.9% of the annual plan in 1H20 but will get a boost in the second half of this year
By Ben Aris in Berlin June 11, 2020

The coronacrisis has knocked back work on Russia’s 12 national projects, causing further interruptions after the programme was plagued by delays in the first half of last year as well. Over the first five months of this year federal spending on the projects was only 28.9% of the annual plan.

The programme is existential for the government of Russian President Vladimir Putin, as trust in the president falls after over six years of real income stagnation.

Since 2012, the Kremlin has diverted all its resources into modernising the military, sacrificing the growing prosperity the people had been enjoying. But as that goal has largely been achieved since about 2018 the Kremlin has turned its attention back to improving the quality of life of regular Russians in anticipation of growing social disapproval of Putin and his government in the coming years. The national projects are the manifestation of that plan, but got off to a slow start last year and now have been side-tracked by the double oil price and coronavirus shocks.

At the same time, the government is keen to get the plans running, as they contain significant spending on infrastructure projects (a third of the total) that will provide a very useful Keynesian boost to the flagging Russian economy, and most of these projects already have funding assigned to them under the current budget.

According to the Finance Ministry’s estimates quoted by Interfax, the highest levels of spending were recorded in projects on healthcare (49.7% of the annual plan), housing (36.5%) and demographics (32.7%), while the biggest laggards in public spending were projects on the digital economy (7.8%), road construction and export enhancement (both 12.2%).

In 2020, half of federal funding on national projects was earmarked for just two projects: demographics (with a share of 33% of total funding) and transport infrastructure (17%). However, by June 1 federal government spending on infrastructure amounted to just 24.5% of the annual plan, reports BCS Global Markets.

“National projects could boost the rate of economic recovery. The projects may support recovery once quarantine restrictions are lifted and the economy starts to operate normally. Moreover, in the government’s recovery plan, which was drafted last week, two of these projects – road construction and transport infrastructure – account for half of the programme in terms of funding. We expect to see a significant acceleration in the execution of many national projects in 2H20 when the Cabinet concentrates on implementing the new economic recovery strategy,” BCS GM chief economist Vladimir Tikhomirov said.