Russia Politics February 2020

Russia: Putin looks beyond 2024, reshuffling cabinet and announcing sweeping constitutional reform

On 15 January, during the annual address to the Federal Assembly, President Vladimir Putin announced the most sweeping constitutional reforms in the history of modern Russia. The changes are intended to shift the balance of powers, weakening the presidency and enabling President Putin to maintain a grip on power after his term expires in 2024. Along with the announcement, Putin also reshuffled his cabinet and obliged the new government to lift public spending and boost growth—a move that should garner popular support and lift the president’s falling approval rankings.

Overhauling the division of powers between the executive and legislative branches of government was the standout constitutional change announced by the president. The State Duma—the lower house of Parliament—will gain greater powers over the cabinet, judges and the security services, including the power to approve prime ministers and civil ministers. The State Council is also set to grow in importance from its current advisory role, while the number of presidential terms will be limited to two and stricter selection criteria are expected to be applied for all positions of public office. As a result, the announced changes are likely to ensure President Putin maintains power via the State Duma, State Council and/or even as prime minister after the expiration of his presidential mandate in 2024. As well as reducing presidential powers, stricter rules will be introduced for opposition candidates running for the presidency, which will rule out a large proportion of wealthy and educated Russians who have resided abroad or have had a foreign passport.

The political reforms were accompanied by a cabinet reshuffle: Mikhail Mishustin, a former head of the Federal Tax Service, replaced Dmitry Medvedev as prime minister. This was likely both to ensure a smooth transition while maintaining public support for the proposed reform package, as well as to prop up Russia’s ailing economy. Mishustin’s government is expected to kickstart the delayed “national projects” program, deliver the promised pension and minimum wage reforms, and introduce new poverty reduction and demographic initiatives.

Dmitry Dolgin and Petr Krpata, economists at ING, believe that looser budget policy might prop up growth as early as this year:

“The recent events confirm our long-standing take that the budget policy is set to ease. […] It means that this year’s expenditure plan will likely increase by at least 0.6-0.7% of GDP, accounting for the social policy measures announced by the president, and the spending backlog from 2019 […] In addition, some 0.3% of GDP could be invested locally from the National Wealth Fund. […] This should positively affect both consumption and investment growth, and even with some potential offsetting factors from growing imports this creates a 0.5 percentage point upside potential to our conservative 1.5% GDP growth expectations for 2020.”

On the other hand, the government’s commitment to maintaining macroeconomic stability implies no changes to the budget rule or monetary policymaking. Artem Arkhipov and Ariel Chernyy, economists at UniCredit Russia, agree and argue that better economic results are far from certain:

“The resignation of the administration will not have an immediate effect on any economic indicators or policies. It will take a while for Mr. Mishustin to assert control over economic policies […] but some longer-term changes are possible. Mr. Mishustin will have to maintain macroeconomic stability so as not to affect inflation, financial variables and the sovereign’s credit quality. There has been a tendency lately to gradually increase public spending commitments, and these could eventually erode Russia’s very strong fiscal position”, according to economists at UniCredit Russia.

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