Russia PM says social spending cuts are not warranted by state of economy which is better than the doom and gloom brigade insists
It has become a bad habit of Russian cabinet ministers and its central bankers to constantly in public disparage the country’s own economy painting it in doom and gloom. It was therefore like a breath of fresh air when Prime Minister Dmitry Medvedev today broke ranks with the self-flagellating ruling elite as he shared a positive report on Russia’s economic performance of last year.
Medvedev reminded about the difficult external environment caused by the dramatic fall in the price of oil and the Western sanctions aimed at crippling Russia’s economy, as well as the unprecedented risks in the global economy at large. The Central Bank in turn seems to have completely dropped these considerations from their policy deliberations.
The prime minister rightly noticed that a couple of decades ago these kinds of external factors could have wrecked the entire country including risking the the possibility of protecting its borders, whereas Russia today is strong enough to withstand these grim threats in every sense. Russia has successfully adapted to the new realities, moreover, the country is actually developing in key sectors of the economy, Medvedev reported.
Most importantly, Medvedev announced that his cabinet will not sequester the budget as several key detractors have been demanding, requiring up to 10% additional cuts in spending. Medvedev explicitly ruled out any austerity cuts in social spending, which makes sense both morally and in terms of economic growth: “There will be no reforms at the expense of the people”, he remarked. It was truly refreshing to hear that overall the PM dedicated a lion part of his report not on the ubiquitous financial constraints we are flooded with but on how he intends to spend on developing the social sector.
Russia is keeping the budget deficit at 2.5% (of GDP), which in a global comparison is a great achievement these days. Russia will thus be able to keep its enviably low level of government debt, which presently is 13.6% of GDP. This is significantly lower than what the struggling Western economies are burdened with, many having racked up debt to levels of 100% or more.
Diversification and import substitution in full fling
Everybody calls for a diversification of Russia’s economy, but Medvedev was the first to admit that it is actually happening. In the no-good-news Russian government that comes out as a revolutionary statement. In this regards, the PM identified a few star sectors of the economy: chemicals, machinery, pharmaceuticals, agriculture and food processing. All these sectors showed a healthy growth, while the most impressive results were recorded in pharmaceuticals where growth skyrocketed by 26%. The development of the pharmaceuticals industry has been absolutely vital for keeping the country independent considering the hostile sanctions warfare. We must remember that during the Iraq sanctions hundreds of thousands of people were killed as the Western powers included even medicine supplies in the sanctions regime.
The agriculture sector grew in total by 3% as Russia not only substituted imports by its own products but also significantly grew its exports, including of meat, which would have sounded fantastical only a few years ago. This success comes in great part thanks to a program including 222 billion rubles of government subsidies.
The industrial sector most directly in charge of ensuring Russia’s independence, the defense industry kept pushing forward with a 20% growth. Russia also sold $14 billion worth of weapons abroad, the second biggest arms exporter, while raking in new orders to the tune of $26 billion.
Even the traditional oil industry was able to grow its output to reach a historic record of half a billion tons of oil extracted.
The most surprising detail in Medvedev’s report was perhaps that under these difficult external conditions even construction of new housing actually grew by as much as 10%, the sector delivering 84 million square meters of new homes.
With his report to the Duma, Prime Minister Medvedev delivered a much needed confidence boost to investors and the populace alike.