Russia use Pensions to Plug the Countrys Budget Holes

For the second year running Russia uses pension savings to fill budget holes. 

The Government has now approved a plan where employees´privately managed pension funds help plug the countrys budget holes for the second year running according to Reuters. 

The decision has been heavily criticised by some officials and analysts who say it will hurt the pensions industry and financial markets. 

Finance new system

The decision was made in a budget discussion among government ministers. Minister of Labour and Social Protection Maxim Topilin says that all abligatory pension contributions would be directed to finance the redistributive state pension system in 2015, including funds originally earmarked for private management. 

This reflects growing strains on Russias public finances, due to an economic slowdown aggravated by US and EU sanctions over Ukraine. 

Focus on priorities and improved efficiency

In a budget meeting this week Prime Minister Dmitry Medvedev says "To achieve further growth, we need to focus on priorities and improve the efficiency of public spending. On the other hand, it’s imperative to analyse additional opportunities for raising revenue, including a variety of options, even a tax increase, even though this should be our last resort."

The meeting was on budget projections for 2015 and the 2016-2017  planning period. Medvedev says the country now needs a realistic and balanced budget which includes current realities in Russia and the global economy, including the negative impact of sanctions against Russian companies and, as a matter of fact, the entire country. 

Questionable foreign investment

Medvedev further says that the external borrowing environment is not very good, and foreign investments are also questionable. Therefore he suggests that Russia more actively must engage in import substitution and support the high-tech industries in the country, such as nuclear industry, aerospace and others. 

He assures that no matter what happens, the country must continue to move forward, implement programmes and projects of national significance. 

Russia currently faces both additional restrictions at the same time as they must overcome long-term challenges. Medvedev says its two ways to go, balancing the expenses and revenue, let alone borrowing. Both of these are difficult, but they need our attention and require comprehensive solutions.