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Government ministers, experts ring alarm bells over condition of Russian economy

September 24, 2013, 14:50 UTC+3 Zamyatina Tamara

MOSCOW, September 24 (Itar-Tass) - Against the backdrop of the five-year anniversary of the 2008 world economic crisis the Russian authorities have raised the subject of a slowdown in economic growth again. Russian Prime Minister Dmitry Medvedev at a meeting with the leadership of the Federation Council told the upper house members that the 2014-2016 budget would be the tightest one over the past few years.

“This budget is called to ensure Russia’s stable development in the context of a worsening economic situation in the world,” Medvedev said. In his opinion, even the 2008 crisis was easier to cope with. “There is no crisis today, but there is no development, either. There are no incomes. The foreign markets are closed, but the budget has to be replenished somehow. It is necessary to ensure proper development in the context of an uncertain economic situation.”

Medvedev offered his vision of the ideology of the 2014-2016 budget the Federal Assembly will be asked to approve in November. He acknowledged certain distortions in forming the budget and the irrationality of the current distribution of incomes between the federal and regional levels of the budget system. The budget on the agenda envisages wholesale reduction by 5% in a majority of the spending articles, which is a clear sign that the government’s social and investment obligations cannot be honoured as long as the incomes stay at the current level.

Last week government ministers were discussing the economic situation in the country during the “Government Hour” question-and-answer session at the State Duma. Finance Minister Anton Siluanov said that the growth rates were declining. “Whereas in the first two quarters of the year we saw 4-percent growth, as of the second half of the year there followed a decline to 2.1%. Federal budget incomes in 2012 made up 12.9 trillion rubles (20.5% of the GDP), spending - 13 trillion rubles (20.6% of the GDP) and deficit - 39.5 billion rubles (0.06% of the GDP).

Economic Development Minister Alexey Ulyukayev said that in the second half of this year Russia’s economy might grow by 1.8% of the GDP, which, he said, was unsatisfactory. “We have drafted a plan for exerting efforts along several lines. For instance, measures to improve the climate for doing business. Nine “road maps” for promoting business initiative have been charted and adopted already. Procedures are being discussed to enhance the investment attractiveness of the Russian economy, ease customs procedures, and reduce the deadlines and costs of connecting enterprises to power supply networks. To support export a mechanism was created for subsidizing interest rates. It matches the WTO norms well. At this point Russia is still in the 112th place in the world in terms of its business climate,” Ulyukayev said.

The deputy chief of Russia’s Audit Chamber, Valery Goreglyad, said that the country lacked a long-term development strategy. As follows from what he said, at the moment of Russia’s accession to the WTO the country was faced with 94 restrictive measures, but only five have been cancelled since. The rates that apply to some import goods are lower than those agreed with the WTO.

The chief of the State Duma’s budget committee, Andrei Makarov, said that the soaring prices of energy resources will be unable to resolve the problems of Russia’s economy. “These are not budgetary problems but structural ones,” he said. He pointed out that “spending on the regions’ investment development has been down by 1.7%.” Makarov said the number of regions whose consolidated budgets remained in the red had grown to 67 from 57. The state debt of Russia’s constituent territories in 2012 alone was up 15.3%. This concerns 63 regions, whose overall state debt stands at 1.35 billion rubles.

Andrei Makarov pointed to another major problem of the Russian economy. “Back one year ago we, State Duma members, warned that we would lose more than half a million small businesses. As many as 600,000 businessmen have already handed in their patents and licenses. Many more will do so by the end of the year. We had wished to slash the tax on small businesses by half, but under the current system of administration we increased it four-fold.”

The Russian authorities have failed to achieve any improvement in the investment climate in accordance with the government-approved road maps. On Monday the Cabinet of Ministers found out that only half of the planned measures had been implemented. Most of the problems concern the promotion of competition, construction and the registration of businesses. Medvedev described progress in the implementation of “road maps” expected to promote a favourable business environment as unsatisfactory. He said he was referring to nine road maps drafted within the framework of the National Business Initiative.

Asked about the reasons why the “road maps” are stalled many experts said that “officials have no special reasons for expanding business activity, because they will derive no immediate benefits from this personally.”

“For encouraging business processes it would be very important to create a mechanism of independent administration of justice and to restrict the government’s intervention in the economy,” the daily Nezavisimaya Gazeta quotes the assets manager of the financial company AForex, Sergei Kovzharov as saying. “Stable tax policies and government administration conditions are important factors to businesses. Any businessman should have the awareness that it will be possible to plan one’s spending - lease, taxes and deductions to social funds for three to five years to come. Also, it is important to have the certainty that nobody will take the business away.”

The reasons why the implementation of road map plans has been so slow are quite plain, analyst Anton Soroko, of the Finam holding company, has told the daily Nezavisimaya Gazeta. “Unrealistic implementation deadlines and high bureaucratic costs. The mechanism of road maps is rather effective for large-scale transformations of the business environment. The standards of doing business keep rising. If no changes are made to the existing system now, then it will go hopelessly obsolete in five to ten years from now.”