Russia prepares anti-crisis plan for its ailing economy

As Russian economy gets hurt due to falling oil prices, Western sanctions and declining rouble, sources say Russian government sets aside $1.7 billion for draft plan to save economy in case it worsens even further

Photo by: Reuters
Photo by: Reuters

A Russian 100-rouble banknote is seen, Moscow, Russia on January 11, 2016

The Russian government has set aside 135 billion roubles ($1.7 billion) to help the real economy in a draft anti-crisis plan, two senior officials said, and may use a separate 340 billion rouble ($4.35 billion)cushion to dampen social discontent, according to a third source.

Battered by low oil prices, Western sanctions and a falling rouble, Russia is torn between the need to support its shrinking economy and its desire to preserve funds to help it navigate one of its worst downturns since Vladimir Putin came to power.

Two senior officials told Reuters on condition of anonymity that an anti-crisis plan had been drawn up which earmarked $1.7 billion to help parts of the real economy. The funds were drawn from unspent budget money from 2015, they said.

The railway and agricultural machinery industries and the consumer goods manufacturing and construction sectors would receive some of the funds, one of the sources said. Russia's car industry has already been promised 50 billion ($640 million) of the 135 billion roubles ($1.7 billion), the other source said.

The finance ministry, which controls the anti-crisis fund, is against spending all the money, one of the senior officials said. A final decision on which sectors will benefit and by how much had yet to be agreed.

Most of the aid will be in the form of subsidies and state guarantees to share the risk with banks and reduce borrowing costs.

"Our revenues have fallen because of recent events on the oil market, not grown, so why should we discuss an increase in spending?" one of the sources said.

The finance ministry declined to comment.

Parts of Russian industry have struggled to get bank loans because the banking sector itself is not able to access Western finance due to sanctions related to the Ukraine crisis.

One of the sources said funding for the anti-crisis package could, if necessary, be increased thanks to $4.35 billion in funds accrued from freezing pension transfers.

The likelihood of that happening was "very low" however, the source said.

Several economic advisers to Putin say his preference is to preserve the country's reserves even if that means economic growth suffers. The economy is expected to shrink by up to 1 percent this year after contracting by 3.9 percent in 2015.

The $4.35 billion, accumulated thanks to a moratorium on transferring money to non-state pension funds, may in part be used to keep a lid on social discontent by supporting employment and helping offset increases in drug prices, one of the officials said.

Parliamentary elections are due to be held in September and a presidential election in 2018. Sources have previously told Reuters that the $4.35 billion may be used later this year to increase pensions.