Stability trumps growth for government as Russians prepare to vote -economists

  • In Business
  • 2021-09-16 11:29:27Z
  • By Reuters

By Alexander Marrow

MOSCOW (Reuters) - Low wages and rising prices are crucial issues for Russians at parliamentary elections this week, but maintaining financial stability matters more to the Kremlin than driving growth, economists say, with inflation a lingering concern.

The Sept. 17-19 election, the last major vote before a presidential poll in 2024, comes as Russia is recovering from its worst economic downturn in more than a decade, the result of the COVID-19 pandemic and low prices for oil, its major export.

With vaccinations underway and commodity prices recovering this year, the economy is growing faster than previously expected, expanding 10.3% year-on-year in the second quarter.

Inflation has remained stubbornly high despite five interest rate hikes this year, reaching an annual 6.84% in mid-September.

The central bank's most recent key rate increase, by 25 basis points to 6.75%, was last week.

Higher prices are a major concern for voters: Oxford Economics research based on a recent WCIOM poll showed falling incomes and essential goods becoming unaffordable ranked among the population's main worries.

"That's what the population is very concerned about," said Tatiana Orlova, Oxford Economics' lead emerging markets economist and author of the research note.

"The economy is important in these elections because that is what's on people's minds."

Ahead of this week's elections, President Vladimir Putin ordered one-off social payments and public sector salary increases worth at least 500 billion roubles ($7 billion) - something analysts said may further fuel inflation.

"This might have some pro-inflationary impact going forward," said Dmitry Polevoy, head of investment at Locko-Invest. The central bank has said the fresh social payments - to pensioners and soldiers, among others - will not have an impact on its monetary policy.

Kremlin critics say the measures are designed to boost support for the ruling United Russia party. The Kremlin says the support measures have nothing to do with the election.

With a budget surplus now close to 1 trillion roubles, the government could afford to spend even more, analysts say, but it prefers stable public finances to faster growth and improved living standards.

"On the priority scale, both for the government and the Kremlin, maintaining fiscal and financial stability, having a high level of reserves and low level of debt, is by far a more significant objective than supporting growth and more stable, more speedy increases in real incomes," said independent economist Vladimir Tikhomirov.

Russia does plan to spend 1.6 trillion roubles from its sovereign wealth fund on infrastructure projects between 2021 and 2024, despite central bank warnings of inflationary risks if authorities spend too freely.

The rainy-day fund, built up from oil revenues, stood at $190.5 billion at Sept. 1.

($1 = 72.4500 roubles)

(Editing by Katya Golubkova and Catherine Evans)


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