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Russian finance minister compares state debt buildup with ‘road to nowhere’

June 16, 20:27 UTC+3 ST. PETERSBURG
Increasing the state debt is simply a delusion, which may lead to default the minister says
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Russian Finance Minister Anton Siluanov

Russian Finance Minister Anton Siluanov

© EPA/YURI KOCHETKOV

ST. PETERSBURG, June 16. /TASS/. The buildup of Russia’s state debt currently at 14% of the country’s GDP may bring about "deplorable consequences," Finance Minister Anton Siluanov sad at the St. Petersburg International Economic Forum (SPIEF-2016) on Thursday.

"Increasing the state debt, even though it is small today, is simply a delusion. This is a road to default, a road to nowhere," the finance minister said.

At the same time, it is necessary to cut the budget deficit and switch to a balanced budget, Siluanov said.

His opinion was shared by national development bank VEB Deputy CEO Andrei Klepach who said, however, that the course towards a deficit-free budget in the current conditions might not justify itself.

"Need we cut the deficit by one percentage point? We need to cut it. But does this mean that we need to live with a deficit-free budget, considering the tasks we’re facing? At what price will we be doing this?"Klepach said.

A deficit-free budget in a scenario where "the price of oil does not grow and will be about $40 or even $50 plus per barrel is possible only if we freeze real wages," he said.

This will be possible, "if we don’t normally index the wages of employees in the budget-financed sectors and servicemen and pensions," he added.

At the same time, it is necessary to build up budget allocations for health care and education and, therefore, it won’t be possible to achieve a deficit-free budget, Klepach said.

"Which source can be used? In some part, these are taxes and, perhaps, some tax maneuver may be needed. But in this situation, it is better to increase the debt," he said.

The strategic objective

According to the Russian finance minister, the strategic objective is to bring growth of the Russian economy to level higher than the global.

"The strategic objective is to bring our economy to a higher rate of growth than the rate of the global economy and thus to move forward, not to catch up with other countries in terms of the economic power and economic development," the minister said.

According to Siluanov, in order to achieve this, it is necessary to change the structure of the economy, making it more innovative, sustainable and independent of the external economic environment.

He noted that it is also necessary to achieve a situation where the business will not be afraid for their investments, "so that those institutions that operate in our country were not worse, but better than in other countries with growing economies".

The budget deficit reduction

The minister said reducing the budget deficit in 2017 to less than 3% of GDP is unrealistic.

"The volume of tax revenues will grow with nominal GDP growth, but non-tax revenues will be reduced. Therefore, the task of reducing the budget deficit in the next year more radical is hardly possible. Therefore 3% of GDP - is the approximate level, taking into account possible sources of income and budget consolidation," the minister said.

Budget deficit in the range up to 1% does not affect the economic situation, he added.

"The deficit of up to 1% of GDP does not affect the economic situation. It is important that the deficit does not put pressure on the macroeconomy, spending and reserves," Siluanov said.

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