Putin Looks to Spending to Get Economy Back on Track

(Bloomberg) --

Vladimir Putin wants to get Russia’s economy growing again after the pandemic with a burst of spending. His government is working overtime to find the money to pay for it.

Just what the Kremlin leader has in mind is being kept secret until his annual address to the nation on April 21. But officials led by Prime Minister Mikhail Mishustin are already considering several possible ways to come up with the cash, according to people familiar with the deliberations. Options include tapping the government’s $182 billion rainy-day fund, easing spending restrictions under a self-imposed fiscal rule, diverting money from other projects and raising taxes, one person said.

The efforts are so hush-hush that much of the work is being done in a high-tech basement war room across the Moscow River from Russia’s White House government headquarters jokingly known among insiders as “the bunker.” Requiring digital face-recognition for entry, the facility lets Mishustin and his team collect vast amounts of data from across the government and break down bureaucratic silos to speed decision-making, these people said.

Mishustin on Tuesday showed Putin around the facility, located in a converted conference center, the Kremlin said.

Though Russia’s economy didn’t shrink as much as many others during the pandemic last year, the Kremlin is eager to speed the recovery, especially with parliamentary elections due this fall and support for the ruling party flagging amid falling incomes. A spokesperson for the government didn’t respond to a request for comment on the spending plans.

The new program is likely to include a combination of infrastructure spending to boost investment and welfare and other benefits to help compensate the slump in incomes, officials said. Putin has already ordered the government to select projects ranging from high-speed rail to bridges and ports to get as much as 1 trillion rubles ($13 billion) from the wealth fund starting this year. How much money the Kremlin will spend remains the subject of heated debate, according to the people close to the discussions.

The Kremlin wants to hold huge reserves to protect itself in case of new Western sanctions. The U.S. is preparing new measures expected to be announced as soon as the next few weeks. A Russian troop buildup on the border with Ukraine in recent weeks has added to tensions, helping push the ruble to the lowest levels since November.

What Our Economists Say:

“The government has significant fiscal space, but geopolitical risk will constrain additional spending. We’re likely to see the Finance Ministry stay conservative in its headline projections while committing more reserves toward highly selective public investment.” --Scott Johnson, Bloomberg Economics (Read More: Russia Insight)

“With the long-term challenges for oil and Russia starting to look even tougher, it’s unlikely the government will ease budget policy a lot,” said Natalia Orlova, chief economist at Alfa-Bank in Moscow.

The central bank has already warned that too much new spending could force it to accelerate interest-rate increases as inflation surges above target. The current budget plan calls for reducing spending this year and next to reduce the deficit that grew amid last year’s pandemic-stimulus efforts.

For Mishustin, who got the prime minister post just a few months before the pandemic hit, the latest effort is a chance to get back to the economic-development focus he’d hoped to make a priority. Known for using computer technology to overhaul the bureaucracy at his previous job as chief of the tax service, Mishustin is also pushing for high-tech improvements this time.

©2021 Bloomberg L.P.