“We’re currently going through a very difficult stage. Growth rate will be low for the next 2-3 years” – claimed Kudrin at the business-conference held by U.S. Chamber of Commerce. “If we don’t carry out corresponding reforms during that time, low growth rate within 2-3% will also persevere in the future”.
Former Minister of Finance hasn’t ruled out that toughening of sanctions may bring about recession in Russia, which will last as long as two years. “Discussion of SWIFT lockout is currently in progress. This fact alone may cause Russia’s GDP to shrink by 3-5%. Maybe more in case of the Iranian sanctions scenario”, - noted Kudrin.
“If the SWIFT system is cut off after all, this factor alone may cause a GDP contraction by up to 5% during the year since the restriction is imposed. However I presume that won’t happen” – he predicts and specifies, that if sanctions persist there is a chance of not only zero growth rate but a “slight drop below zero”.
Kudrin believes, that sanctions aside, Russian economy might have had a 2 – 2,5% rate of economy growth: “We had severe structural and institutional economy issues that facilitated decrease of the economic growth rate by the time sanctions were imposed and Ukraine crisis broke out. Drop of the growth’s potential to 2 – 2,5% is almost there. And that is our mid-term growth potential without sanctions.”
In order to reach higher GDP growth rate serious structural reforms are required “which were not carried out when I was in the office”, he noted. At first it was explained by the need to quit the crisis. Social issues became a number one priority. “Government chose not to bother population with changes in the social support mechanism” – specified former minister of finance.
“Today budget’s social support expenditure is bigger. This year investments of Russian entities will be lower due to the growth of social expenditure and salaries. Such issues pile up. And when we need investment support, government continues to increase social expenditure regardless of the limited resources’ – he complains.
In Kudrin’s opinion, regardless of the sanctions, impact of which he evaluated at 1% of GDP, structural and institutional issues should be a number one priority for the authorities. “I don’t know whether sanctions will be toughened or whether the conflict will resolve, but this vagueness is the biggest reason of low investments and disability to resolve piled up issues” – he noted.
At his estimate resolution of political issues will take around 2-3 years: “Damage already inflicted to Russia and Ukraine as a result of recent developments – war and sanctions – is way bigger than damage without sanctions that would follow if Ukraine joined EU”.