Russia: Austerity cushions

  • The risk of the public’s patience snapping and the derailment of the present policy framework is being addressed by a new approach to social policy.
  • This involves much more disciplined targeting of transfers and benefits at the most sensitive groups – both socially (i.e. the poorest groups), and politically, as exemplified by the focus on non-working pensioners.
  • The risk from disaffected youth is lower than may seem, with repression in the form of internet content controls being part of the policy response.
  • The fiscal price of latest measures is a manageable 0.17% of GDP, but the groundwork is already being laid for a more material fiscal loosening ahead of the important political test of the Duma election in 2021.
  • The overall approach will “work” – but at an economic cost which is linked to the relative losers of the re-distribution strategy being the ‘productive middle’.
  • Aside from this overall cost, specific policies associated with this political insurance premium point to some enhanced investment opportunities such as private healthcare.

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