“The Russian Economy and Banking Sector in the Mid-Term” Round-Table Meeting

April 20, 2011 the members of the “Strategy 2020” Work Group, Director of the Center for Structural Surveys of the Gaidar Institute Alexei Vedev spoke at the round-table meeting “The Russian Economy and Banking Sector in the Mid-Term (till 2013)”, где рассматривались prospects and issues at the Russian banking system.

The speaker particularized institutional limits on economic growth, recovery growth in the industry (see the presentation). Selection of a vector of the economic policy, inertial and pessimistic scenarios for the budget system were considered. “According to the Ministry of Finance, there will be no deficit. According to the Ministry of Economic Development and Trade, there will be deficit, because the social security sector and investment programs will need financing”, stated A. Vedev.

According to the analysis made by the expert, under the inertial scenario, federal budget expenditures  are expected to stabilize at a level of 20.5% of GDP or less (enlarged government – 37% of GDP), which corresponds to the current level. Deficit of the Pension Fund of the Russian Federation which is financed from the federal budget, is not expected to go beyond 5% of GDP. Federal budget deficit is expected to maintain within a range of 2.5 to 4% of GDP and  public debt is expected to reach 39% of GDP in 2020 under the given circumstances.

Under the pessimistic scenario, budget deficit and public debt are expected to increase more (up to 5.5% and 52% of GDP, respectively) in 2020. High budget deficit would cause fast growth rates in money supply throughout the entire period till 2020, thereby making it impossible to lower inflation.

In his review of the Russian banking system A. Vedev pointed to a high level of relending in the banking system, growth in personal savings, and excess liquidity. He believes that it is wrong to make separate forecasts for inflation and growth in GDP, because they are interdependent, and low inflation can be achieved through stagnation, whereas growth in GDP would result in price rise. According to the participants of the round-table meeting, economic policy should either follow a wider consumption or investments. Both are hard to be achieved though.

Hence the banking sector is facing a very fragile situation. Mr. Vedev believes that no precipitous movements should be made today. Не трогать The rate of refinancing and exchange rate should be kept unchanged, because the situation is more or less leveled off for the time being. The participants of the round-table meeting summed up that economic growth can be achieved by the real sector and SMEs, and the federal government should follow this direction to lead the Russian economy out of stagnation.