Vladimir Putin has delayed his flagship $360bn national investment plan by six years as the coronavirus pandemic pitches Russia into recession and leaves a hole in the federal budget.
Mr Putin unveiled the so-called National Projects two years ago as a much-needed Rbs25.7tn ($362bn) injection into the Russian economy, and promised it would lift stagnant living standards and drive up moribund GDP growth to exceed the global average by 2024.
The decision to delay the initiative, billed by the Kremlin as Mr Putin’s primary domestic objective during his current term as president, is the starkest sign yet of the damage the Covid-19 pandemic is wreaking on Russia’s economy and the long-term impact on the country’s budget revenues.
It is also a volte-face on Mr Putin’s pledge earlier this year to boost short-term spending as he sought to revive his sagging public ratings, and comes just a few weeks after he won a national vote endorsing a new constitution that will allow him to ignore previous term limits and rule for another 16 years.
Postponing the investment bonanza is likely to further delay Russia’s recovery from a six-year economic funk and means real household incomes are likely to continue to fall, potentially deepening public discontent that has fuelled a series of protests against Mr Putin over the past year.
Analysts have pointed to a recent surge in arrests and detentions of political opponents, journalists and activists as a sign that the Kremlin will seek to combat public discontent with force rather than handouts.
“We have to work under tighter budget constraints,” prime minister Mikhail Mishustin told Mr Putin in a televised meeting on Monday.
“The spread of the coronavirus and its consequences for the global economy and our country . . . have created new limits, slowing economic growth and constricting consolidated budget revenues,” he added, before Mr Putin endorsed his suggestion that the National Projects deadline should be extended to 2030.
Russia’s domestic lockdown to prevent the spread of Covid-19 and a global slowdown that has hit demand for its natural resource exports are set to see the country’s economy contract by 6 per cent this year, according to World Bank forecasts, and only begin to recover in 2022.
In addition, a plunge in oil prices caused by a global collapse in demand for fuel from drivers, airlines and shippers is expected to result in a $40bn shortfall in budget revenues this year.
The Kremlin’s decision to save cash by delaying the National Projects plan comes as other European governments roll out massive stimulus programmes to help their economies bounce back from the pandemic.
Western sanctions imposed on Russia after its 2014 annexation of Crimea restrict Moscow from borrowing on international debt markets, and Mr Putin has resisted tapping the country’s $170bn national wealth fund, fearing that it will be necessary to protect against potential future sanctions.