The Moscow stock market hit new highs in the first half of January, garnering praise from investment managers around the world. Russia's budget with a surplus of 1,8 percent of the total economy is the envy of many Western countries. Foreign currency reserves are among the largest in the world.
Nevertheless, the economy is still limping, according to some estimates, it is on the verge of stagnation. New figures published on February 3 show that gross domestic product slowed by 1,3 percent last year and has been in steady decline since 2018, Radio Free Europe writes in English.
Many Russians are impatient with stagnant wages, shrinking pensions, high taxes and still high interest rates on loans.
The prescription, in the eyes of the Kremlin, is what John Maynard Keynes wrote 90 years ago - any economy facing recession or even just stagnation - should spend more.
Most economists predict a small increase. But how big the stimulus and whether it will be enough to move the economy to a higher league is far from a clear vision.
"The question is... how big will the increase be, whether the dynamics of the increase will be large or only moderate," said Vladimir Tikhomirov, chief economist of BCS Financial Group in Moscow.
"I don't expect a strong, big effect on the economy from government spending," he adds.
President Vladimir Putin shook up the government in January by ousting his longtime prime minister, Dmitry Medvedev, and bringing in the head of the state tax service, Mikhail Mishustin.
In his 'state of the nation' speech, Putin specifically called for spending on social initiatives: US$65 billion by 2024 for free hot meals in schools and subsidies aimed at encouraging more children in families.
Praised for modernizing Russia's tax system, which was Mishustin's post before taking over as prime minister, it is widely seen as a sign that the Kremlin not only wants to increase spending, but that it is spending that money wisely.
Putin "wants to be sure that the money is spent efficiently, effectively, and that the money will not just make more billionaires," Tikhomirov told RFE/RL.
The loosening of state coffers in recent years is a change for fiscal planners in Moscow.
Russia's current fiscal strength is largely the result of conservative policies that fixed the budget at a relatively low world price—$42 per barrel—of oil or gas, the country's main source of revenue.
When oil prices exceed a certain level, the excess income is channeled into a fund for 'black days'. That fund now has about eight trillion rubles (which is about 125 billion US dollars).
Austerity policies have helped Russia weather sanctions imposed by the West after Moscow annexed Ukraine's Crimea peninsula in 2014. It also, albeit slowly, helped lower long-term interest rates.
Such austerity policies were supported by officials such as Alexei Kudrin, a former finance minister who now heads the Chamber of Inspections, a financial watchdog; head of the Central Bank, Elvira Nabiuljina; Minister of Finance Anton Siluanov; and Maksim Oreshkin, now former Minister of Economic Development.
Oreshkin lost his job in a political upheaval that many observers saw as a sign that the Kremlin was looking for a way to pave the way for more spending — even though he is now an aide to Putin.
Furthermore, the man he is replacing in the Kremlin is Andrey Belousov who in turn replaced Siluanov as First Deputy Prime Minister Mishustin. Belousov himself is known for supporting increased spending from state funds.
"An unprecedented amount of money from the funds will be allocated for the implementation of the promise to provide social assistance to citizens," Siluanov said on January 29. "These decisions will not affect the budget and macroeconomic stability".
Putin also ordered officials to boost funds for national projects by US$400 billion over six years - an initiative launched in 2019 designed to modernize the economy.
The projects had a slow start with funds not being spent. Some economists warn that they could become a trap for the economy.
Mishustin is expected to figure out how to spend the money better. That, and the expected additional overall spending, has prompted some economists to lighten their forecasts for 2020 and 2021.
"Increased consumption should, at the very least, cause faster growth in purchasing power," Natalija Orlova, chief economist of Alfa Bank, told RSE.
"I think that in 2020 the cabinet will not dramatically ease the budget policy, but in 2021 there will be pressure on the Ministry of Finance" to spend more, said Orlova.
Russian and foreign experts have been warning for years that the Russian economy is crippled by more systemic problems: corruption, bureaucracy and lack of independence of the judiciary and the rule of law.
Lawmakers face doubts about official statistics, said Vladislav Inozemtsev, an economist and director of the Center for Research on Post-Industrial Societies in Moscow. The National Bureau of Statistics changed its methodology last year, raising questions about how reliable official data is.
"Foreign investments will continue to fall due to pressure on entrepreneurs and explicit attempts by officials to engage in illegal business with non-public information," Inozemtsev wrote for Delovoi Petersburg, an online magazine.
"Domestic businessmen will take a wait-and-see position. In such a situation, the efficiency of government investments (including National Projects) and the question of whether the pension reform will have a significant effect will become of critical importance," he said.
Among the factors crippling National projects so far is the reluctance of the private sector for investments, Tikhomirov said. Businesses and entrepreneurs who enter into partnerships with government agencies rarely commit resources to joint efforts. So far, there are no indications that this will change.
Also, Tikhomirov said, in poorer regions outside major urban centers such as Moscow and St. Petersburg, the civil service is the biggest source of employment. Reforming that trend would mean firing older workers from the public sector and giving them higher wages in order to attract younger people instead of 'grandmothers' as he calls them - ie. literally grandmother.
"The government realizes that if it fires babushkas, it has to increase social costs in the region, and that is expensive," he says.
Ruben Jenikolopov, rector of the Russian School of Economics, called the government measures 'cosmetic'.
"They will not lead the country out of stagnation in which economic growth still lags behind the world average, nor can they accelerate it to 2 or 2.5 percent annually," he wrote in a commentary for the Vedomosti newspaper. "That's right, the swamp remains, only now the economy can jump over holes a little more actively."
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