Unforeseen support: Russia will index pensions by 9.5% from January
Insurance and military pensions in Russia will be indexed by 9.5% retroactively from January 1, a similar measure awaits social payments and benefits. This was announced by Vladimir Putin on January 22 at a meeting on economic issues. He emphasized that inflation was higher than predicted, and urged the government to respond to its accelerated pace. In general, Vladimir Putin called 2024 quite successful for the Russian economy. The expert community also gave a corresponding assessment: the relative size of the budget deficit compared to GDP of 1.7% does not pose any significant risks to the sustainability of the domestic economy. What industries require support today and why they want to resume the work of the government commission on improving the sustainability of the Russian economy - in the material of "Izvestia".
Russia's budget deficit in 2024
Vladimir Putin held the first meeting on economic issues in the new year on January 22. The whole specialized block of the government and industry departments traditionally joined the event. The opening speech of the head of state lasted only 10 minutes, then the meeting continued in closed mode. However, during this time, the President managed to raise pensions for Russians, assess the results of the year in the Russian economy in 2024 and analyze the situation in the banking industry.
- Last year was quite successful for the Russian economy. The key macroindicators are in the positive zone thanks to responsible, calculated and joint actions of the state and the business community," he said.
Prime Minister Mikhail Mishustin, center, at a meeting of Russian President Vladimir Putin on economic issues via videoconference
Vladimir Putin also called the budget deficit of 1.7% of Russia's GDP in 2024 acceptable, especially against the background of the state of affairs in the public finances of "some so-called developed economies". In particular, according to the latest estimates, in 2024 the budget deficit in relation to GDP in the United States amounted to 6.2%, in France - 6.2%, in Italy - 3.8%, in Japan - 3.7%, and in Germany - 2.2%.
The relative size of the budget deficit compared to GDP does not pose significant risks to the sustainability of the economy, emphasized Alla Chalova, Associate Professor of the Department of State and Municipal Finance at the Plekhanov Russian Economic University. The Ministry of Finance mainly finances the deficit by placing federal loan bonds (OFZ), i.e. by increasing domestic government debt, recalled Vladimir Chernov, analyst at Freedom Finance Global.
- The Ministry of Finance considers a safe level of government debt at 20% of GDP and plans to keep it within these limits until 2030. Now it corresponds to 14.5% of GDP. Therefore, there are no risks for the economy. However, if the sanctions pressure on Russia intensifies, the budget revenues will decrease, while the deficit and, accordingly, borrowings will grow," the analyst explained.
According to the Ministry of Finance, budget revenues last year compared to 2023 increased by 26% to Br36.7 trillion. Positive dynamics is observed both in oil and gas and non-oil levies. The situation in these sectors was also commented separately by the President.
- Last year, revenues, not related to the sale of oil and gas, increased. They added 26% and amounted to Br25.6 trillion. This is almost Br800 billion more than the government expected in the fall, which means that the state treasury is already forming a reliable revenue base this year, which is much less dependent on the external situation on the commodity markets, - said the head of state at the meeting.
At the same time, the oil and gas indicators have also pleased: the budget in 2024 received Br1.3 trillion of additional revenues from such revenues.
The increase in non-resource revenues is due to the growth of GDP and inflation, as well as the increase in corporate profits amid economic recovery, higher wages and stronger tax control, explained Olga Belenkaya, head of macroeconomic analysis at Finam Financial Group.
- Oil and gas revenues increased due to the growth in the cost of Russian oil (the average price in 2024 amounted to $68 per barrel against $63 in 2023) and the weakening of the ruble (in 2024, the average dollar cost 92.4 rubles, and in 2023 - 84.7 rubles). The budget assumed other options: Urals - for $70 per barrel, and the dollar - 91.2 rubles," she explained.
Russia will increase pensions by 9.5%
Traditionally, among the priorities of the budget - ensuring social justice and improving the well-being of citizens with low incomes, the President reminded. Thus, social payments and benefits this year will be indexed to the actual inflation, which at the end of last year exceeded the expectations of the Central Bank and amounted to 9.5%. This is higher than the forecast of the Ministry of Economic Development, which assumed a price rise of 7.3% in 2024.
- I should note that inflation was also higher than the government's forecast. This situation, of course, should be responded to. It was planned that from January this year insurance pensions would be raised by 7.3%, i.e. by the inflation rate that was forecasted. And as I have already said, as we know very well, in reality it turned out to be higher," the President said.
Along with insurance pensions, military pensions will also be indexed according to the actual inflation rate. The President instructed to implement this decision retroactively, that is, to recalculate insurance pensions taking into account the increase by 9.5% already from January 1, and in February to make the corresponding supplementary payment. "I ask the government to take the necessary actions to implement these and other decisions on indexation of social payments and benefits as soon as possible," the President stressed.
Indexation of state payments will help protect citizens from the decline in the purchasing power of the ruble for 3-6 months, said Andrei Barkhota, PhD in Economics. According to him, despite the fact that it can increase the budget expenditure burden, the consequences will not be significant, given the low level of state debt.
- The authorities need to revise the target inflation rate from 4% to 6%, as in the Republic of Belarus. In addition, the sources of price growth are in the growth of costs and the impact of sanctions. To improve control over the situation, it is necessary to implement the economic model of supply, within which it is important to increase the output of goods and services," said the expert.
Risks of distortions in the credit sector
In general, Russia needs to achieve moderate inflation and avoid imbalances in the economy and the consumer market, the president said. For this purpose it is important to closely monitor the state of demand, its sectoral structure, as well as the volume of borrowing: in December the dynamics of the corporate loan portfolio seriously slowed down, and in January it is below the target benchmarks, the President noted.
- At the same time, the quality of issued loans remains at a high level. The share of overdue debt in the corporate portfolio, i.e. loans to companies, businesses, is 2.6%, and in the retail portfolio - to citizens, individuals - 3.7%. And these indicators were stable throughout last year," said Vladimir Putin.
Nevertheless, the banking sector has a sufficient capital reserve, feels confident and has the necessary resources to finance and develop the Russian economy, the President believes.
- It is clear that the decline in lending activity may create risks for long-term growth. We discussed this not so long ago at a meeting with the business community. It is important to prevent such distortions and, in general, to ensure such an increase in the loan portfolio, which is necessary for confident economic dynamics and at the same time allows us to achieve the Central Bank's inflation targets. It is not an easy task, but we should strive for it," he said.
For this purpose we need to work with each industry, because while the overall picture may show a normal growth of aggregate demand, the situation differs for individual sectors. For example, the President touched upon the coal industry and the construction sector, which faced a decline in demand due to the curtailment of preferential programs and high interest rates.
To address these challenges, the government commission on enhancing the sustainability of the Russian economy will resume its work. It was active during the coronavirus epidemic: it prepared and made timely decisions to support enterprises, businesses, and industries.
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