The leaders of the economic bloc at SPIEF agreed that state injections into the economy should be reduced

The first day of the SPIEF business program revealed the emerging consensus of financial and economic officials of the Russian Federation in a discussion about the limits of the budget’s participation in supporting the economy – a decrease in revenues pushes the authorities towards a symmetrical reduction in spending and their prioritization. Opportunities to optimize spending on helping businesses are estimated at 10–15%. The current frontal support for business is ineffective – spending should be concentrated on priority areas of development and structural transformation of the economy. However, there is still no agreement on the choice of priorities and the allocation of funds, even attempts by the state to manage structural adjustment when making decisions on financing specific projects can jeopardize private initiative and the efficiency of enterprises, the Central Bank warns. So far, the key programs for transforming the economy are based on state funding.

The tone of the first day of the St. Petersburg International Economic Forum was set by macroeconomic session with the participation of the Chairman of the Central Bank Elvira Nabiullina, the heads of the Ministry of Finance and the Ministry of Economics Anton Siluanov and Maxim Reshetnikov and the Assistant to the President for Economic Affairs Maxim Oreshkin, who opened the business program of the forum.

After numerous disputes about the stimulating or stabilizing function of the economy, the economic and financial authorities agreed on the need to reduce state injections into the economy.

However, the consensus is explained by the de facto lack of alternatives due to declining budget revenues under the influence of sanctions. In conditions of abundance, the previous model of frontal support for the economy could continue. So, Maxim Reshetnikov called budget injections a key factor in the adaptation of the economy. Now we have to choose between cutting spending and raising taxes. “We must decide either on one or the other, otherwise it does not happen,” said Elvira Nabiullina.

Despite the already planned withdrawals to the budget of the excess profits of large businesses, the systematic choice fell on the optimization and prioritization of government spending. Many expenses “have not been reviewed for a hundred years,” Anton Siluanov noted. Mostly it was about reducing injections in support of business – frontal (addressed to all) support is ineffective, entrepreneurs prefer benefits to private credit and do not seek to increase competitiveness and productivity. There is no consensus on the principles of cost reduction yet.

The Ministry of Economy sees two ways: hard, with the rejection of inefficient programs, or softer, due to a proportional reduction in all costs, but the government can also choose a “hybrid” regime.

In the Central Bank, the frontal spending cuts are considered the worst from the point of view of the economy.

First Deputy Prime Minister Andrey Belousov later explained the logic of cost prioritization: “Among exporters, it is necessary to support those who develop new corridors, enter new markets, those who find themselves in a difficult situation. Among SMEs, first of all, those who enter new production chains, replacing importers, start-ups.” Due to such point optimization of costs where it is less sensitive or inefficient, it is possible to reduce about 10-15%, he believes.

However, the very approach to determining priorities for economic development is also not flawless. “We confuse the state’s activity in a crisis, which should be, with the fact that we want to constantly manage the economy. And this temptation to manage the structural restructuring of the economy can lead to the fact that we will suppress private initiative … It is enough for the state to concentrate the right to make decisions on what kind of production and what projects to develop and where to direct financial resources instead of private initiative,” warned Ms. Nabiullina. The new programs to support the structural restructuring of the economy, despite the mechanisms for stimulating private initiative, are largely based on state financing (through the budget or state companies) – companies are not ready to take the risks of implementing large projects in an environment of uncertainty. At the same time, business recognizes the costs of state support: offset contracts that ensure long-term demand for the products of some companies mean barriers to entry into the market of others, Alexander Shokhin, head of the RSPP, cited an example on Thursday. According to him, a balance has yet to be found between support and competition.

Diana Galieva