ALEXEI VEDEV: THE SCENARIO OF ECONOMIC RECOVERY AFTER THE LOCKDOWN

“Since March, Russia has been confronted with “three shock”: the epidemic of the coronavirus infection, a drop in oil prices and slowdown of the global economy and, consequently, a decrease in demand in Russian products. The European Commission forecasted an economic slump of over 7% for the euro zone. The above-listed shock factors affect both demand and supply. It is obvious that amid the outspread of the pandemic the economic slump will be substantial”, Alexei Vedev states.

The government has announced the new support measures for the small and mid-sized businesses. By decision of President Vladimir Putin, the self-employed will be returned all taxes paid in 2019, as

well as the tax capital in the amount of one minimum monthly wage. For the enterprises which have preserved the employment at the level of 90%, the amount of the loan on wages will be repaid by the state.

According to Alexei Vedev’s opinion, these measures are not enough. “There are two problems. First, the funds of the National Welfare Fund should be preserved, if not compensated. At the end of March, I wrote in my scientific papers that the rhetoric should be changed from tax holidays and loans to direct funding because small and mid-sized businesses were sustaining huge losses. The second problem consists in the fact that after the economic slump is over growth rates will be recovering. During this period, the economy needs support a lot. In terms of economic growth of 2017-2019, support measures were insufficient; the debates were going on between the Ministry of Economic Development and the Central Bank of Russia in respect of the high interest rate and tough economic measures. At present, the Central Bank of Russia has reduced the rates and the government switched over to the stimulus policies. In my view, these can be solved through the compensation of losses and implementation of the policy aimed at promotion of future economic growth”, Alexei Vedev notes.

Because of the lockdown amid the spreading coronavirus pandemic, a question arises which industries will be the first to recover.

“Those sectors which are the first to come out from the lockdown will recover ahead of others. In my view, it is the services sector and hairdresser's parlors. Each region will experience its own domestic recovery which depends on the extent of the contamination of the region. Regions have the right to the financial support out of the federal budget or the National Welfare Fund. These measures are required for compensating losses of the small and mid-sized businesses and reviving their activities. There is currently no downward trend of the pandemic. It is necessary to achieve a certain level before applying economic liberalization measures”, Alexei Vedev believes.

As an anti-crisis measure, small and mid-sized businesses are allowed to write off all tax payments in Q2 2020, except for VAT. To support financial and economic stability, Saudi Arabia, the largest oil exporter will increase the VAT three-fold from July 1, 2020.

In Alexei Vedev’s opinion, these economic patterns are different. Due to a dramatic drop in oil prices and low fiscal performance, the budget is subject to a shock. The VAT collection rate is the highest, so the tax was left. It actually suppresses the drive to economic growth. By increasing the VAT in 2016, it was proposed to reduce the social tax on labor within the range of 15%-30%. It is a good motivation measure which should be preserved as well after the pandemic and the crisis”, Alexei Vedev says.

It is to be noted that support will be granted to regional funds of micro-financing. They will be allocated Rb12bn for the implementation of the program of support of the small business.

“The idea of supporting funds of micro-financing is not clear to me. I regard them as a shadow sector. I believe that support to the small business can be rendered through regional state-run banks. At the same time, I find the idea of postponement of loan foreclosures put forward by the RF President to be a good one. The issue of households’ debts to banks has been debated for three years. I think it will help people who have found themselves in a difficult situation during the crisis”, the expert of the Gaidar Institute concludes.