President Vladimir Putin: The issues that we are going to discuss are constantly in sight – our common field of vision. But still, when we meet in this format, I would like to hear from you a more accurate assessment of the current overall state of the economy. First.
Second, I would ask you to start with supporting domestic demand, because this is both an economic and social issue.
Please you have the floor.
Minister of Economic Development Maxim Reshetnikov: Mr President.
Thank you for the opportunity to report on the current economic situation. Indeed, you regularly hear information from us.
In recent years, our economy has demonstrated resilience to external shock and often the ability to develop regardless of external circumstances. This has also been the case with Covid because we “fell” less than many other countries in 2020 and have recovered faster.
Moreover, many countries overcame Covid by borrowing very heavily, which led to runaway inflation, on the one hand, and on the other…
Vladimir Putin: They prefer not to talk about it now. I look at the analysis from the West; I sometimes watch European and American news programs – this is being completely silenced; no one actually talks about it at the expert level.
Maxim Reshetnikov: And they will inevitably pay for it because of a high level of debt in conditions of rising interest rates, because you can't afford not to react to inflation. It's clear that this is a challenge for them, but of course it also affects us one way or another.
At the same time, it is obvious that our situation is completely different: we have substantially lower state debt and inflation rates. As of March, our annual inflation rate was one of the lowest among the developed countries – 3.5 percent. As of April, it went down to 2.6 percent.
Vladimir Putin: I see that in March, the inflation rate was 3.5 percent. Meanwhile, Germany had 7.4 percent and the euro zone in general 6.9 percent; France had 5.7 percent, the United States 5 percent. Brazil had a rate slightly higher than ours.
Maxim Reshetnikov: A rate of 3.5 percent corresponds to March. In April, according to the weekly data, the inflation rate is 2.6 percent per annum.
Vladimir Putin: These are their March figures as well.
Maxim Reshetnikov: Their inflation rate is decreasing, too. In any case, we can see the effectiveness of the measures we took. Moreover, last year we created a solid basis for inflation to decrease this year. We are not going to raise utility rates and our harvest is excellent.
We also have effective stabilising mechanisms. Partly, the difference in the inflation rate is thanks to the decisions made two years ago. We have flexible export duties, and they prevent global inflation from spilling over to our country.
Mr President, on the next slide you can see this year’s growth rate projections for the economies of the world.
Vladimir Putin: I am looking at the state debt figures.
Maxim Reshetnikov: The state debt figures speak for themselves.
Vladimir Putin: Russia has 14.9 percent of the GDP and the United States has 121.7 percent.
Maxim Reshetnikov: Basically, of all the European countries, Germany was the only one producing something considerable.
Vladimir Putin: The euro zone has 90.9 percent, Germany 66.5 percent, France 111.1 percent. Our state debt equals 14.9 percent of the GDP. This is a good result.
Maxim Reshetnikov: This is exactly the reserve of macroeconomic stability that we always talk about, and that is allowing us to move forward faster now.
Consequently, this is the forecast of the economic growth in the world in 2023: the developed economies show an expected growth rate of 1.3–1.6 percent, according to the IMF. But our forecast is 1.2 percent, with certain nuances. As you know, actual growth is usually higher than the forecast. We are slightly more conservative in our assessment because certain risks are taken into account when budgeting and, as a rule, the forecast proves to be below the actual outcome, while the IMF forecasts prove to be more optimistic than the resulting figures. So, I believe that at the end of the year, Russia will be among the leading developed countries in terms of economic growth.
Vladimir Putin: Let’s hope for that. So, this is the forecast.
Maxim Reshetnikov: An estimate for 2023.
Vladimir Putin: Is it the ministry’s estimate?
Maxim Reshetnikov: Yes, it is our estimate for Russia. The IMF predicts slower economic growth while still admitting that our economy is growing. These are the IMF estimates.
Vladimir Putin: Is the IMF predicting economic growth of 0.8 percent of the GDP for the euro zone?
Maxim Reshetnikov: Yes, it is lower than ours.
Vladimir Putin: And Germany is expecting a decline?
Maxim Reshetnikov: Yes, according to these forecasts. A decline is inevitable because of the drastic and forced energy shift caused by cutting off our energy sources, which will undermine the competitiveness of many industries in Europe. Therefore, inevitably, European consumers and the European economy will have to pay for this. The effects we have predicted all these years are starting to show.
As regards the main parameters of the forecast, Mr President, we have reported to you in detail. You were absolutely right about the main growth source – consumer demand, and this demand…
Vladimir Putin: That is why I asked you for this meeting.
Maxim Reshetnikov: Consumer demand is based on the growth of real disposable income, and we consider it as being at a level of almost 4 percent, and all the main components will grow.
First, this concerns wages. We believe that they will grow by at least 5.4 percent in real terms. If we take the first two months, January and February, we will see a 13-percent rise, which is a very good pace. Of course, they will not keep growing indefinitely and will slow down at some point. But nevertheless, in real terms they remain at very, very high levels.
Second, this concerns social benefits and the decisions we made last year regarding indexation and social payments. Not all the payments were envisaged since the beginning of the year, so this will mean certain upward adjustment for this year in annual terms, plus indexation. And last but not least, entrepreneurs’ incomes are also growing, we see how business people feel.
Speaking of wages, they are essentially the basis of stable domestic demand. A very important, crucial decision will come into force from January 1, 2024 – increasing the minimum monthly wage by 18 percent.
Vladimir Putin: By 18.5 percent.
Maxim Reshetnikov: Yes, by 18.5 percent, exactly.
It will give a powerful boost to growth in, say, the population groups with the lowest income. As a rule, these are the groups that generate demand for domestic goods. So these are the right decisions, from both social and economic points of view.
Moreover, amid the long-term low unemployment rate – and we forecast that the current labour market, with its labour shortage, will remain the same in the coming years – it will boost the modernisation of enterprises.
Vladimir Putin: And it will increase wages as well.
Maxim Reshetnikov: Yes, it will bring the wages along. This is, of course, a totally new reality, which, together with continued investment, changes the quality of our economy.
It is important to note that all these forecasts are being monitored. Each index has a trajectory for this year, and we monitor how the trajectories deviate from course as part of the risk management system created in the Government, every month, so that we can report promptly to you and make proposals regarding the situation.
At this point, the figures we have are in total accord with the situation. The industrial output statistics show good results: in March, it grew by 1.2 percent as compared to the previous year, that is, we exceeded the level of March, 2022 by 1.2 percent.
Industrial output is indeed growing at a good pace, including mechanical engineering, metalworking and the food industry. That is, where the import substitution processes have been successfully launched, there is a very visible growth rate.
Our export-oriented industries are adapting to the new circumstances and the logistics arrangements are being re-aligned, as well. The temporary decline is now being overcome across the board. The economy is adapting, as we reported earlier. This is what I have to say about the general economic background.
If I may, I would like to move on to supporting small and medium-sized businesses, because they represent a quarter of our GDP and the 28 million people who work there. This is part of the issue concerning consumer demand and individual income.
Notably, thanks to the systemic policies of recent years and the national project [“Small and Medium Enterprises and Support for Individual Entrepreneurial Initiatives”] the small business has become a true driver behind economic restructuring.
In other words, it is a real participant in economic activity and a very strong sector in the manufacturing industry, in mechanical engineering, metalworking, the IT sector, the professional services sector, and, without a doubt, the tourism and hospitality sector, which has become an economic driver as well.
What can I say in this regard? The dynamics of employment has grown significantly. Indeed, employment is up largely due to the new mechanisms for self-employment. Many people have become self-employed, which also means they are going legal. Importantly, this is not undermining our labour relations.
The number of people working at small and medium enterprises has remained relatively stable over recent years, which is good. We have seen a small drop, but this is rather a matter of statistics. Importantly, the total number of gainfully employed people is on the rise.
All of that is being done without intermediaries thanks to the existing support. Every 10th ruble issued under a loan in the economy of small and medium businesses is, in one way or another, backed by state funding and, as a rule, these loans are taken out in these high priority sectors.
Vladimir Putin: Are these low-cost loans?
Maxim Reshetnikov: Yes, they are. We are expanding the use of this tool. Speaking of concessional lending, we have launched two new programmes that have proven their effectiveness.
The first programme includes the “umbrella guarantee,” that is, for companies that have a problem not only with the cost of money, but with capital as well. In order to get a loan, they need to have resources of their own.
Often, fast-growing companies – clearly, international businesses have left and many new niches and opportunities have become available. These companies need to expand, but when they apply for a loan, the bank tells them they don’t have enough capital. We created an umbrella guarantee mechanism to deal with this, where we tell the banks dealing in a specific portfolio of loans for small and medium-sized businesses: “If you run into losses and businesses don’t have enough capital to cover them, we will step in and cover a portion of your losses with budget funds as part of the national project.” This concerns actual issued loans, of course.
And, we succeeded; last year we approved 230 billion rubles worth of such loans. Strictly speaking, the banks issued these loans while we encouraged them to do so. So far, the costs have totaled about 30 million rubles. In other words, 30 million rubles for budget loans versus 230 billion in bank loans. This is a huge lever. Most importantly, every fourth ruble was given to companies that would not have taken out such a loan under any other terms.
To sum up, this programme helped increase credit availability for small and medium-sized businesses by one third, with minimal budget outlay. Of course, losses are possible because these loans are long-term and these companies may need more loans later, but overall this is a very effective tool, if I may say so.
We gained a second interesting tool by cooperating with the Bank of Russia. They fund banks to issue loans to small and medium-sized businesses at preferential rates. We reduce further these rates a bit under the national project. The SMB Corporation guarantees loans for regional banks in order to encourage more banks to participate. We eventually provide businesses with loans at 2.5–4 percent interest.
But these are only investment loans and are issued only in priority sectors – the manufacturing industry, mechanical engineering, IT, services and logistics. The number of these loans is growing. Incidentally, we agreed with the Bank of Russia to double the latter programme on investment loans this year.
During the presentation, I cited examples of specific businesses. Overall we have about 500 loans. We pulled out five loans to look at more closely, because they are for logistics. This means real production.
Vladimir Putin: The Irkutsk and Vladimir regions. I will look at them.
Maxim Reshetnikov: Yes, Karachayevo-Circassia. There is a hotel in Arkhyz, and so on.
Vladimir Putin: Saratov Region, Primorye Territory.
Maxim Reshetnikov: Yes.
The other thing that is important for us is that before, the big cities, the metropolises, were the drivers of businesses, whereas now these tools allow loans to spread throughout the country. In other words, loans have really become more accessible to businesses from small towns, villages, and the competition for them has increased. Of course, this is also largely because of the digitalisation process we are conducting, digital profiles and the like.
Mr President, let me report separately on our support for businesses that have suffered in the border areas.
Vladimir Putin: The Belgorod, Bryansk, and Kursk regions, Crimea.
Maxim Reshetnikov: You gave us instructions to do this. We were in Belgorod, we toured companies, and you know, the feeling from these businesses is positive. Their bottom line is, “We have started rebuilding our business. Will you help us or not?”
Vladimir Putin: Strong people work there.
Maxim Reshetnikov: There are strong people there, very strong people. One enterprise – a chemical production company in Shebekino, located close to the border, was just destroyed, and people began to restore it without waiting for any help. We were there, and there is a successfully operating production facility there: “We are already working, we need certainty.”
Vladimir Putin: I would ask you to continue this work and help them.
Maxim Reshetnikov: The Government has made the necessary decisions and allocated a billion rubles, and we have already distributed the money to the regions. Of course, every region will determine the specific amount of support, but we will oversee all this together with them.
The only thing, Mr President: we determined the damage as of March 1 – it is clear that a situation is changing there. Perhaps we will return to this issue in the second half of the year.
Vladimir Putin: This is how it should be done. It is necessary to assess the situation according to developments on the ground.
Maxim Reshetnikov: Thank you. Then, relying on your position, we will make proposals on the funding.
Vladimir Putin: If you need to issue it in the form of some kind of instructions, please do so.
Maxim Reshetnikov: We regularly report all these situations to you.
Vladimir Putin: I understand. Fine.
Maxim Reshetnikov: Thank you.
Separately, I would say a few words about the new territories. We are also deploying a support system for small and medium-sized businesses there. What will it include? In June, we will begin issuing soft-term loans at 10 percent for up to three years to small businesses there.
First, businesses are registering very actively there – since the beginning of the year, 65,000 companies have been newly registered, and they all automatically received the status of SMEs and, respectively, all of them participate in our programmes. We will start issuing preferential loans; the amount is still small – up to 2 billion rubles. When we understand how the process is going, we will redistribute the money within the national project and then look into it further.
In July, we will start a leasing company. As we agreed with the Donetsk People’s Republic, we will capitalise the leasing company from the federal budget, and it will provide services for all four regions.
Vladimir Putin: From Donetsk?
Maxim Reshetnikov: Yes, it will be located in Donetsk. And in September, we are planning to launch the My Business centre, open regional microfinance and guarantee organisations so that the entire infrastructure is created, as in all other regions. Therefore, we keep the issue under control, we have all your instructions.
And the last point I would like to raise – I am referring to big investments, on top of smaller ones. Mr President, I have some additional material I would like to present, with your permission.
Following your instructions, we are supporting not only small and medium-sized businesses but also larger projects. We have created a mechanism of agreements to protect and encourage investment. It guarantees the invariability of terms and makes it possible to compensate business expenses with new taxes on infrastructure. Most importantly, we reset this mechanism in the past five months – 19 new contracts and agreements have been signed.
What also matters is that companies have revised their financial models. They redesigned their projects and are now coming to us with ready-made new projects. And, they have also changed suppliers. In the past, they had suppliers from the West. Now they often deal with suppliers from the East. Plus, there is a lot of Russian-made equipment in these projects, which was not the case before.
Vladimir Putin: Because it was easier to purchase it, but now there is a need to produce it.
Maxim Reshetnikov: This is the first point.
And the second point. Now they have started counting expenses on future maintenance and support services, and it appears that our companies can provide them simpler and cheaper.
Vladimir Putin: And quality is often even better. In some industries, some sectors, the dependence will exist for a long time, and in some cases it will be inevitable, considering the division of labour. But there are many niches where we have good schools, good hands and, as it turns out, good competences as well.
Maxim Reshetnikov: I think the main point is the development of trust in our engineers and machine builders. Even if something they produce now is not the best in the world, the dynamics are very good.
Vladimir Putin: I see it spreading throughout the country – 52 projects with an investment of over 2.4 trillion rubles in 33 regions. These include the Amur and Volgograd regions, the Trans-Baikal Territory, the Irkutsk Region, the North Caucasus, the Kaluga and Kemerovo regions, the Krasnodar and Krasnoyarsk territories, the Leningrad Region, and naturally Moscow, Murmansk, the Nizhny Novgorod and Novgorod regions. Very good.
Maxim Reshetnikov: The new projects, 19 of 52, that have appeared over the last five months focus on mining, ore processing, molybdenum, copper, and the food processing industry.
Mr President, in terms of capital in the economy, due to the redesign and suspension of some budgets, many projects need a little extra investment, and investors cannot always come up with the required amounts when needed. So, we are working to finalise these arrangements, and we will help them with state investment – not just investment, but guarantees. We will help them mitigate risks, because otherwise these projects will come to a halt. This is critically important for the economy.
Vladimir Putin: Yes, these are good major projects.
Maxim Reshetnikov: These projects include the Russian Platinum project and Allegro, which is a promising project to make discs, which we recently reviewed.
Vladimir Putin: Railway car discs, correct?
Maxim Reshetnikov: Yes, railcar discs, in the Sverdlovsk Region.
Vladimir Putin: Titan.
Maxim Reshetnikov: Titan-Polymer is in the Pskov Region, in a special economic zone. It is also an excellent enterprise, and the company is very good, too. By the way, they raised the issue of streamlining costs for industrial production in terms of reengineering requirements and construction rules.
Vladimir Putin: The Sverdlovsk Metallurgical Plant.
Maxim Reshetnikov: This is a fairly small investment, even though the word “small” is probably irrelevant here, since it amounts to 2.2 billion rubles, a rather large amount. Most importantly, they are close to the market, the oil companies consume a lot, so the operation is quite effective.
Vladimir Putin: What does the Ilim Group build?
Maxim Reshetnikov: It is cardboard, in the Irkutsk Region. Construction is nearing completion. They started out with a promise that they would have an opportunity to conclude an investment protection and promotion agreement (IPPA).
Here is a good project, the methanol project in Volgograd. They plan to build mooring walls and load it onto ships and take it further to the Azov Sea-Black Sea region and, accordingly, the Caspian Sea.
Vladimir Putin: The market demand is high.
Maxim Reshetnikov: Yes. In fact, methanol is liquefied gas, the first gas conversion.
Vladimir Putin: Greenhouse facilities?
Maxim Reshetnikov: Yes, in the Caucasus. We have a regional IPPA mechanism where the volume of investment is smaller, and the regions actively reach out to us and work with us as well.
I could keep talking about the Caucasus on and on. The economy there has picked up steam in recent years, and the growth numbers have finally begun to outpace the national average.
Vladimir Putin: They need it because they were lagging far behind and much remains to be done there.
Maxim Reshetnikov: I would say the law enforcement system has accomplished a lot there. The business climate has changed a lot, and people believed in themselves.
Vladimir Putin: Much remains to be done there, but the first steps are quite encouraging.
Good. Thank you.