Russia's PM says government has funds to honor social spending pledges

MOSCOW Sat Apr 19, 2014 5:41am EDT

Russian President Vladimir Putin (L) talks with Prime Minister Dmitry Medvedev during their meeting at the Novo-Ogaryovo state residence outside Moscow April 19, 2014. REUTERS/Alexander Astafyev/RIA Novosti/Kremlin

Russian President Vladimir Putin (L) talks with Prime Minister Dmitry Medvedev during their meeting at the Novo-Ogaryovo state residence outside Moscow April 19, 2014.

Credit: Reuters/Alexander Astafyev/RIA Novosti/Kremlin

MOSCOW (Reuters) - Russia's government has enough resources honor all its social spending pledges although this will not be easy, Prime Minister Dmitry Medvedev was quoted as telling the country's president on Saturday as tensions over Crimea add to Moscow's economic ills.

On returning to office in 2012, President Vladimir Putin promulgated 'May decrees' that included promises to double pay for teachers and doctors by the end of his six-year term.

Analysts from Moscow's Higher School of Economics have said the additional social spending would require 700 billion rubles ($20 billion), or between 1.2 and 1.3 percent a year of the $2.1 trillion-strong Russian economy.

But the economy faces new strains, including those arising from international friction and extra budget spending associated with the annexation of Crimea last month.

"We have the resources to fulfill all the social obligations, although the obligations are hard (to implement)," Medvedev told Putin, according to Interfax news agency.

On Tuesday, the government more than halved its economic growth forecast for 2014. Deputy Economy Minister Andrei Klepach said then that even a new "base case" scenario of 1.1 percent growth would be unattainable without extra spending, requiring "modification" of the budget rule.

Russian budget rules limit government borrowing to 1 percent of output and link spending to the long-term oil price.

During Putin's first two terms as president, the economy clocked up annual growth rates of about 7 percent due to a boom in oil prices, while easy monetary conditions flooded emerging markets with cheap investment dollars.

That ended with the global financial crash of 2008 and, with the government now relying on current oil prices of more than $100 per barrel to balance its books, consumer spending is the main additional factor that is keeping the economy ticking over.

Medvedev said on Saturday the government had managed to keep the Russia's economy growing despite pressure from the problems in the global economy.

Putin has said that costs of subsidizing programs related to Crimea would not exceed 100 billion rubles ($2.8 billion) this year.

($1 = 35.7170 Russian Rubles)

(Reporting by Vladimir Soldatkin; Editing by Anthony Barker)

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