Analytical commentary

Economic policy measures

On August 17 this year, the Government of the Russian Federation allocated RUB 21 bln for additional monthly payments to low-income families with children aged three to seven.

Over August 21–24, the President of the Russian Federation announced that the state would make new one-time social payments:

  • RUB 10,000 for pensioners, including working pensioners and veterans;

  • RUB 15,000 for servicemen, military school cadets, and law enforcement personnel.1

ACRA’s calculations include 42.6 million recipients in the first category and 2.5 million in the second.

ACRA estimates the total cost of the above measures at RUB 450–500 bln, of which more than 90% will be spent on the payments for pensioners. This estimate is in line with the latest estimates of the Russian Ministry of Finance2 and other government agencies.

1 It was also proposed to index the salaries of these categories of citizens above inflation in 2022 and 2023. These expenses have not been studied as part of this analytical commentary and the new indexation rate is currently unknown.
2 See RBC’s article from August 24, 2021 “Siluanov estimates Putin’s proposed payments to cost ₽500 bln”.

Main economic implications

1) Growth of the population’s annual nominal disposable income by 0.8–0.9% (0.6–0.9% in real terms); if only the recipients of the payments are taken into account, then this growth amounts to more than 5%. As a result, a short-term decline in income inequality will take place as the recipients of the payments are mostly part of less affluent sections of the population.

2) Worsening of the federal budget’s balance by 0.4 pps of GDP compared to a scenario excluding the aforementioned payments. This deterioration will not be critical due to the receipt of additional substantial oil and gas and non-oil and gas revenues. Actual revenues may be 3.5–4 pps of GDP higher (if the current trend is maintained) than expected revenues for 2021, which were set out in the December version of the budget. This is the result of the fairly conservative macroeconomic prerequisites chosen when planning the budget — even despite these new payments it is most likely that the federal budget will still record a surplus in 2021.

See ACRA’s research Specifics of Sources for Russian Macroeconomic Forecasts from May 13, 2021 for more information on the conservative and optimistic nature of economic expectations in Russia.

3) Slight increase in inflation. A significant portion of the increase in disposable income will push up consumer demand for goods and services. This will lead to increased consumption and higher prices in markets with low elasticity of supply. We emphasize that, given the not fully recovered service market and under-utilized processing capacities, the impact on prices is likely to be noticeably less than in normal economic conditions. According to ACRA’s estimates, this effect is capped to 0.2 pps. This additional rise in prices alone cannot lead to any noticeable tightening by the Bank of Russia of its interest rate policy.

4) Short-term stimulus of economic activity. Taking into account the current estimates of public spending multipliers (-0.8–0.6 on a one-year horizon for social policy) and based on the observation that, globally, they take the highest values during recessions, ACRA believes that the new social payments will lead to GDP growing by an additional 0–0.25 pps (compared to the ‘no payments’ scenario), but this effect will be spread throughout 2021 and 2022.

Figure 1. Volume of discretionary (non-automatic) anti-crisis fiscal measures in large developing economies in 2020–2021*

* All data (except Russia) is shown as of July 1, 2021.
Sources: IMF, ACRA

Without taking into account the effects of automatic budget stabilizers, the state had planned to spend, within a year and a half (and mostly has spent) about RUB 5 tln or about 4.7% of 2020 GDP on anti-crisis measures. The recently announced measures will increase this indicator by 9%, while Russia will remain in the middle of the spectrum of developing countries in terms of the volume of anti-crisis fiscal stimuli during the pandemic3 (Fig. 1).

Varying amounts of accumulated fiscal stimulus across countries are largely explained by the differing degrees of the fall in business activity caused by the pandemic and its even more uneven recovery.

For more information, see ACRA’s research Vaccination as a Factor for an Uneven Recovery from April 21, 2021.

3 The analysis includes the announced additional anti-crisis expenditures, as well as revenues unearned due to certain decisions, and not the reduction of tax bases. The calculations exclude transactions referred to as deficit coverage sources, as well as off-budgetary transactions. For most countries, data is taken from the IMF’s Database of Country Fiscal Measures in Response to the COVID-19 Pandemic.

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Dmitry Kulikov
Director, Sovereign and Regional Ratings Group
+7 (495) 139 04 80, ext. 122
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