MOSCOW Aug 25 A fiscal rule that prevents
Russia from raising government spending reflects "old realities"
and should be relaxed, Russian economy minister Alexei Ulyukayev
said in a newspaper article published on Monday.
Government expenditure is tied to long-term oil prices and
borrowing is limited to 1 percent of gross domestic product.
However, this system faces criticism at a time when the economy,
hit by Western sanctions over Ukraine, risks entering recession.
"Now it is evident that this mechanism has ceased to satisfy
us fully," Ulyukayev wrote in the daily Vedomosti.
"We have denied ourselves possibilities for stimulating the
economy with the help of fiscal policy at a time when we are
close to recession. When it is necessary to activate measures
aimed at softening the negative consequences from the rise of
Ulyukayev's article is the latest salvo in a battle between
fiscal conservatives, led by Finance Minister Anton Siluanov,
and officials such as Ulyukayev who advocate using looser fiscal
policy to boost economic growth.
Official data released on Friday showed that the economy had
contracted in annual terms in both July and June. This slowdown
coincided with a surge in capital outflows and slumping
investment, linked by analysts to the Ukraine crisis and the
impact of western sanctions.
Western nations have imposed a range of sanctions on Russia
over its role in Ukraine's conflict, with Moscow retaliating by
introducing some trading curbs of its own.
Ulyukayev argued that if the deficit were raised to 2
percent of GDP, the central bank could help finance it through
more active open market operations, increasing its balance sheet
through the purchase of government bonds from banks.
Russia should also aim to raise more long-term debt finance
from Asia, he argued. If the extra spending was aimed at
reducing bottle-necks in "productive" sectors and infrastructure
it would not be inflationary, he said.
Such views are likely to be opposed by the finance ministry,
which argues that the existing caps on spending and borrowing
should be retained given limited financing and the risk of
falling oil prices that could hit budget revenues.
(Reporting by Jason Bush; Editing by Crispian Balmer)