President Putin’s Address to the Federal Assembly on 15th January contained the key announcement that he would seek approval via a referendum for a number of constitutional reforms that look to concentrate power in parliament and the State Council in a shift away from the Presidency. Commentators have suggested that when Putin’s Presidential term ends in 2024 this could open the door to him still holding a powerful role within the country although no announcement has been made to this effect. Following on from this, the then Prime Minister Dmitry Medvedev and the government resigned and Mikhail Mishustin, a technocrat in charge of the tax service, has been appointed as the new Prime Minister and Putin has approved the cabinet reshuffle.
A core theme running through Putin’s speech this year (and last) is the need to boost growth and tackle a number of structural issues such as the unfavourable demographic profile and the need to boost the birth rate. Putin commented that a fertility rate of 1.5 in 2019 “is not enough for our country” and talked of further measures to support families. Russia faces a number of structural challenges that constrain potential growth estimates to around 1.6%-2% so, aside from boosting the birth rate, measures to boost productivity, institutional strength and further improvements to the ease of doing business would be beneficial. Putin’s speech talked of the economy needing structural changes and higher efficiency to boost growth and that “it is necessary to launch a new investment cycle,” and “Starting this year, annual investment growth should be at least 5 percent, and investment share in the country's GDP, 25 percent by 2024 from the current 21 percent.”
Mishustin has been tasked with enacting Putin’s ~$416bn national projects programme, a multi-year programme targeting investments in infrastructure, health care and education and incentives to encourage innovation from the private sector. The programme, announced by Putin in 2018, had got off to a slow start and Mishustin’s reputation for effective management and reform of the tax service should allow for better management and implementation of it.
Russia is in the fortunate position of being able to undertake this given its strong credit profile (strong fiscal position, asset buffers, a positive NFA position, low debt levels and a flexible exchange rate). Plus, the discipline of a fiscal rule has boosted Russia’s credit profile enabling it to replenish its National Wealth Fund as oil prices recovered from the lows exceeding budget estimates. Clearly, sanctions (particularly any new ones) remain a risk but so far Russia’s financial strengths and buffers have enabled it to withstand the post-2014 lower oil price environment and ongoing sanctions.