#Moscow: #Russia’s economic prognosis is dire. Alexei Kudrin, who was Russia’s finance minister from 2000 to 2011, said, that within the next few years, Russia’s “reserve funds will be exhausted and they will have to raise taxes.”Kudrin was speaking in London on Tuesday at a Moscow Exchange conference.
He said one of the big problems Russia faces is servicing its social security payments, particularly pensions.
Kudrin said Russia would have to find a way to cut pension payments and devolve budget powers to the regions.
He also said Russia should boost infrastructure investment by using funds earmarked for military and defence spending.
But with an election coming up in a few years and geopolitical risks increasing with airstrikes over Syria and tensions with Turkey, these types of reforms would be unlikely to happen soon.
“The main thing is we should change the economic structure,” said Kudrin. “What we’re seeing is that the current growth potential is quite low.”
This is an understatement.
Russia has been home one of the worst performing major world economies this year. It’s been squeezed by sanctions on government-controlled companies (of which there are about 1500) and an oil price crash.
It’s got both high inflation, at about 15%, and double-digit interest rates, making private financing for business difficult.
Here’s a map of how Russia’s been doing on a global level from HSBC:

HSBC
And here’s its inflation rate compared with other economies:
He said one of the big problems Russia faces is servicing its social security payments, particularly pensions.
Kudrin said Russia would have to find a way to cut pension payments and devolve budget powers to the regions.
He also said Russia should boost infrastructure investment by using funds earmarked for military and defence spending.
But with an election coming up in a few years and geopolitical risks increasing with airstrikes over Syria and tensions with Turkey, these types of reforms would be unlikely to happen soon.
“The main thing is we should change the economic structure,” said Kudrin. “What we’re seeing is that the current growth potential is quite low.”
This is an understatement.
Russia has been home one of the worst performing major world economies this year. It’s been squeezed by sanctions on government-controlled companies (of which there are about 1500) and an oil price crash.
It’s got both high inflation, at about 15%, and double-digit interest rates, making private financing for business difficult.
Here’s a map of how Russia’s been doing on a global level from HSBC:

HSBC
And here’s its inflation rate compared with other economies:
He is probably overstating the danger of Russia running out of money in the next few years. Assuming no improvement in the cost of oil, no new revenue, and social spending at the current rate, that day comes about 10 years from now. Far enough in the future to make prediction impossible. He did not cover, but is certainly aware of, the real problem with the economy. During the early 2000’s, the economy was booming. Kiosks were being replaced with supermarkets and modern electronic stores were replacing open air bazaars. hundreds of new products became available and small manufacturing was booming. That all stopped when the FSB and the crooked courts started stealing every successful business in the country. In the last 10 years, almost three million businessmen have been locked up, most on specious charges, and 85% of them lost their business, having been forced to sell cheap to friends of the FSB or the police. Now no one starts a business unless they already have a bribe relationship setup with a government official and private growth is near zero. Putin has openly acknowledged the problem and has passed laws designed, at least in theory, to stop it, but he has been totally ineffective. Unless a rule of law is established in Russia, it will eventually die a slow death, strangled by corruption.
Bureau Report
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