Current adverse economic situation should come as no surprise to anyone

18 September Head of the Ministry of Economic Development Russian Federation Aleksei Ulyukayev stated at a "government hour" at the State Duma that "...we haven't seen such an adverse economic situation over the past five years since the beginning of the latest crisis."

In our opinion, however, such a statement of the Minister of Economic Development of the Russian Federation should be no surprise at all: the expert community has long been held to an opinion that the Russian economy has reached the potential limit of its development after the crisis of 2008-2009. Moreover, structural reforms designed to revive the economy and subsequently attain steady growth rates should have been implemented a few years ago. It is absolutely clear that development of such reforms takes time, and once implemented, it would take us more than a year to see the effect of the reforms.

It should be note that today at the backdrop of emerged concerns about economic stagnation growth into recession the Russian Government has already taken certain measures. A good example is recent decision about a 5% cut-off in budget expenditures, including non-production items which have no effect on economic growth. It has been reported that the Ministry of Finance has proposed to cut off expenditures by freezing tariffs of natural monopolies as well as salaries of civil servants, military servicemen, judges and prosecutors in 2014. In addition, there are plans to change implementation dates of the armament program from 2014-2016 to a period following 2016. Therefore, a total of Rb 624bn (against Rb 200bn in 2014) expenditures on certain budget items will be reduced over a 3-year period.


Concerns are raised by the fact that Russia's budget provides for no measures which are required to implement reforms intended to stimulate the economy, including improve the quality of institutions and fundamental growth factors (labor, capital and total factor productivity). In addition, no provision is made for changing the structure of public spending itself - a drastic reduction of non-production items in favor of production ones. At the same time, as noted above, the government has been considering such reforms as a top-priority objective over the past few years.


Kazakova M.V., Ph.D. in Economics, Head of Economic Development Department