An ambitious spending program envisaged by Russian President Vladimir Putin as a push for higher GDP growth will do little to boost Russia’s sluggish economy, says a new study from consultants at Oxford Economics, according to RBC.
The study has found that the country’s $400 billion six-year National Projects program will result in an increase in annual GDP growth of just 0.1 to 0.2 percentage points.
If the program doesn’t manage to hit its ambitious spending targets, the net impact over the short-term could be wiped out by the tax increases the government has introduced to pay for it, the research added.
The National Projects is President Vladimir Putin’s flagship economic policy of massive infrastructure investments and economic modernization, designed to revive Russia’s economy and boost its low growth rate. It was announced last year following Putin’s reelection for a fourth and final term as president.
Addressing Russia’s deep-rooted economic weaknesses, however, Evghenia Sleptsova, a senior economist at Oxford Economics who led the research, said: “The National Projects are no breakthrough for Russia’s growth model, as long as institutions continue to constrain productivity and the working-age population declines. Russia is still looking for growth in the wrong places.”
By increasing value-added tax (VAT) to fund the investment drive, the government has hit Russian consumers in the pocket, and therefore reduced the potential of the National Projects to boost growth across the economy, Sleptsova said.
Earlier this year, the government hiked VAT from 18% to 20% in a move which is expected to raise an extra 600 billion rubles ($9.4 billion) for the state’s coffers.
As a result, the impact of the government’s extra spending this year will be “close to zero,” the study warned.
