In February 2019 Moody’s, one of the big three international credit rating agencies, upgraded Russian sovereign debt to Baa3, making it ‘investment-grade’, where previously it had been classified as ‘junk’. Moody’s commented:
The upgrade of Russia’s ratings reflects the positive impact of policies enacted in recent years to strengthen Russia’s already robust public finance and external metrics and reduce the country’s vulnerability to external shocks including fresh sanctions.
That apparent endorsement of Russian policies was dated 8 February. On 25 February it was reported that a paper by Moody’s analysts had ascribed chronic low investment and slow productivity growth in Russia to the dominant role of the state sector and excessive state influence more generally, reducing competition and weakening property rights.
These diverging assessments by the same agency of Russian economic management reflect the view taken by many observers: macroeconomic stabilization good; growth bad. Some authors focus more on the achievements in macro-stability, others on the lack of dynamism. Reports on the Russian economy by the IMF, the World Bank and the OECD in recent years convey the same double judgment.
This paper examines the reasons for the divergence in what might be called economic management. How is it possible for the directors of the Russian economy to pursue an orthodox stabilization policy with a great measure of success and yet to have achieved so little to stem the growth slowdown and recession in Putin’s third and (thus far) fourth presidential terms? Has the pursuit of financial prudence, security and ‘sovereignty’ been conducted in a way that damages growth? Or is it simply that macro-stability is a matter of policy that can be conducted within the overall constraints of the existing economic system – albeit with some radical policy changes – while a sustained improvement in growth requires a reform of the system itself, and basic reform is problematic? If so, what reforms are needed? And what makes them so difficult?
The paper is organized as follows. First, Russia’s recent performance in macro-stabilization is summarized. Then the problem of slow growth since 2012 is assessed, drawing some comparisons with apparently more successful outcomes in what is in many ways a similar economy, that of Kazakhstan. The current attempt to galvanize growth by state-led investment is then reviewed. Next, the relations between stabilization and growth in Russia are considered. In conclusion, the paper offers an account of the gulf between economic policy and systemic reform. Macro-stabilization has been achieved by policies pursued within the framework of the existing economic system. Indeed, that system facilitates stabilization. A sustainable and significant acceleration of growth, however, probably requires the system itself to be changed.