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Putin’s Spending Spree Is So Far Just $53 Billion in the Bank

Russia’s Fiscal Frugality Is Helping Banks but Hurting Growth

(Bloomberg) --

The Russian government’s unusual stinginess with spending this year has turned it into one of the biggest depositors in the banking system, fattening the balance sheets of big state banks and depressing deposit rates.

Lenders were holding 3.4 trillion rubles ($53 billion) worth of federal budget money in deposits and repo operations as of the middle of October, according to the Finance Ministry. That’s almost triple the amount held three years ago when tax revenues were lower but total spending was almost the same.

Less than 66% of the annual budget had been spent by the end of September, the lowest proportion since before at least 2015, according to ministry data.

“The budget has become the biggest source of funding for banks this year,” said said Denis Poryvay, an analyst at PJSC Raiffeisenbank. “The whole system is sitting on this money because of the budget surplus and tight fiscal policy.”

Putin’s Spending Spree Is So Far Just $53 Billion in the Bank

Outlays usually pick up toward the end of the year but bureaucrats have been especially cautious about releasing funds amid a recent Kremlin push to keep tabs on where money goes. Multi-year infrastructure projects proposed by President Vladimir Putin to boost growth are off to a slow start. Officials have dragged their feet on deploying cash because they’re wary of the high-level scrutiny that accompanies the so-called national projects.

Putin underlined his focus on the issue in a Kremlin meeting Tuesday with the head of the government’s financial-control service, who reported that “criminal cases have already begun to appear” for misuse of national-projects funding.

The budget surplus reached 3.8% of gross-domestic product, or 3 trillion rubles, in the first nine months of the year, the widest since before the global financial crisis in 2008. The Audit Chamber estimates that the Finance Ministry could miss its spending target by 1 trillion rubles this year.

The budget is expected to make 180 billion rubles in interest in 2019, more than double proceeds from last year, the Federal Treasury said by email. Amendments to the federal budget indicate this sum is 70.5 billion rubles more than was expected at the end of last year.

To contact the reporter on this story: Andrey Biryukov in Moscow at abiryukov5@bloomberg.net

To contact the editors responsible for this story: Mark Sweetman at msweetman@bloomberg.net, Natasha Doff, Gregory L. White

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