Medvedev: Russia must cut dependence on oil revenues

Russian Prime Minister Dmitry Medvedev (right) and Minister of Economic Development of the Russian Federation Alexey Ulyukayev (left) at the Sochi International Economic Forum. Source: Dmitry Astakhov / RIA Novosti

Russian Prime Minister Dmitry Medvedev (right) and Minister of Economic Development of the Russian Federation Alexey Ulyukayev (left) at the Sochi International Economic Forum. Source: Dmitry Astakhov / RIA Novosti

Speaking at a forum in Sochi, Russian Prime Minister Dmitry Medvedev has revealed that oil and gas revenues have provided for less than half of the federal Russian budget for the first time, and said the country must focus on reducing its dependence on oil through reforms, stimulating domestic manufacturing and cutting spending.

For the first time oil and gas revenues have provided for less than half of the federal Russian budget, said Russian Prime Minister Dmitry Medvedev, speaking at the Sochi International Economic Forum.

In his words, the fall in oil prices and Russia's flexible monetary policy are responsible for the trend, but nevertheless it has to be supported even when oil prices return to high levels.

According to Medvedev, oil and gas revenues should not be the main source for replenishing the budget, while windfall profits from oil sales should be directed towards sovereign wealth funds.

 

A hostage to globalization

Medvedev noted that many changes have occurred in the world and in Russia's economy in the last year.

"Business must not divide countries but on the contrary unite them and such contacts connect governments better than any policy," he said

In his opinion, growth rates in the world remain rather low, even in the U.S. they are lower than experts expected, while the EU is showing zero growth.

Medvedev added that the instability in the world economy and politics has had most impact on the positions of developing countries.

"The Russian economy is a hostage to and beneficiary of globalization. Russia cannot ignore global trends as it concentrates on its own development."

Moreover, in Medvedev's view, "for the last year and a half the Russian economy has had to face unprecedented sanctions from the West and in many cases the sphere of technology has been completely closed to the country."

However, the government had known of the consequences the sanctions would have, but still went ahead and made a conscious political decision that led to the EU and the U.S. imposing them.

 

Strategy for the future

Medvedev announced that Russia has begun involving the expert community to work on a development strategy for the country until 2030. The strategy will have four priorities: investment activity, import substitution, the quality of government administration, and budget policy.

According to Medvedev, the stimulation of investment activity will be one of the main directions in the strategy: "The objective is to remove the barriers that impede (private) money from entering the market," he said.

In the course of the last year several institutes for attracting private enterprises to the economy have been created in Russia. One of these is the Industrial Development Foundation, which was established to help enterprises in their early stages. The government has also made financial instruments accessible for a broader circle of investors.

According to Medvedev, so-called “import substitution” – replacing imported goods with domestically produced ones – is the most important element for structural reforms and competitive enterprises can make the economy more balanced.

"Returning Russian goods to the market is the first step and the ultimate objective is the creation of competitive production," he said.

In several sectors, for example, the food and pharmaceutical industries, products can be quickly brought onto the market, while in others, such as machinery, the investment cycle is longer.

Medvedev underlined that all countries that have taken a giant leap in development made governmental reforms. Furthermore, in the near future, the reduction of revenues and the fall in oil prices will make budget policy even harder.

"The 2016 budget is being prepared according to this principle and the only protected articles will be Russia's international obligations, security, agriculture and social policy," he said, adding that government spending would be reduced for the other fields.

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