A fiscal rule that prevents Russia from raising government spending reflects "old realities" and should be relaxed, Russian Economic Development Minister Alexei Ulyukayev said in an article published Monday.
Government expenditure in Russia is tied to long-term oil prices and borrowing is limited to 1 percent of gross domestic product. However, this system faces criticism at a time when the economy, hit by Western sanctions over Ukraine, risks entering recession.
"Now it is evident that this mechanism has ceased to satisfy us fully," Ulyukayev wrote in the daily newspaper Vedomosti.
"We have denied ourselves possibilities for stimulating the economy with the help of fiscal policy at a time when we are close to recession. When it is necessary to activate measures aimed at softening the negative consequences from the rise of geopolitical tensions," he wrote.
Ulyukayev's article is the latest salvo in a battle between fiscal conservatives, led by Finance Minister Anton Siluanov, and officials such as Ulyukayev who advocate using looser fiscal policy to boost economic growth.
Official data released on Friday showed that the economy had contracted in annual terms in both July and June. This slowdown coincided with a surge in capital outflows and slumping investment, which analysts link to the Ukraine crisis and the impact of Western sanctions.
Western nations have imposed a range of sanctions on Russia over its role in Ukraine's conflict, with Moscow retaliating by banning a range of food imports from those countries.
Ulyukayev argued that if the deficit were raised to 2 percent of GDP, the Central Bank could help finance it through more active open market operations, increasing its balance sheet through the purchase of government bonds from banks.
Russia should also aim to raise more long-term debt finance from Asia, he argued. If the extra spending was aimed at reducing bottle-necks in "productive" sectors and infrastructure it would not be inflationary, he said.
Such views are likely to be opposed by the Finance Ministry, which argues that the existing caps on spending and borrowing should be retained given limited financing and the risk of falling oil prices that could hit budget revenues.
See also:
Struggling With Sanctions, Russia Faces Oil Price Crash
Russia to Use Pension Savings as Short-Term Budget Fix for Second Year
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.
