MOSCOW (REUTERS) – Russia will scale down its state support of the economy in 2021, eyeing rising costs on servicing burgeoning state debt in the fallout of its response to the Covid-19 pandemic and the collapse of oil prices, Finance Minister Anton Siluanov said.

Running out of options to bolster public finances, Russia has more than doubled its domestic borrowing in 2020, raised some taxes and increased state spending as it relaxed its budget rule that shields the economy from external shocks.

Russia’s extra state spending to support the economy this year reached 4.5 per cent of gross domestic product and will shrink to 1 per cent of GDP in 2021, Mr Siluanov told reporters in comments cleared for publication on Tuesday (Dec 29).

Still, state development bank VEB may buy into preferred shares of the state-run Russian Railways to provide the latter with the funds for its investment programme, Mr Siluanov said.

He shrugged off the World Bank’s suggestions that Russian authorities can opt for a more gradual fiscal consolidation than currently planned.

“If we continued the same policy as this year, we would pull out the money from the economy… We can’t withdraw all the liquidity from the market and finance spending,” he said.

The Finance Ministry raised nearly 5.3 trillion roubles (S$95.6 billion) by selling OFZ treasury bonds on the domestic market in 2020, with the bulk of bonds purchased by major banks which dented rouble liquidity levels in the interbank system.

Russia has to return to the budget rule in 2022, Mr Siluanov said, referring to the budget system praised by the International Monetary Fund and the World Bank.

“If so, then we can’t keep our spending high all the time,” Mr Siluanov said.

“We carry out responsible policy unlike other countries that flood and will flood their economies with money.”

Russia’s debt-to-GDP ratio has already reached 20 per cent, the level which the ministry did not want to exceed, and spending on servicing debt will rise to 1.4 trillion roubles in 2023 from up to 800 billion roubles this year.

Russia has no plans to raise taxes, Mr Siluanov said, repeating the same line from the previous years that, however, did not prevent Russia in 2020 from hiking taxes on some sectors and on Russians earning more than around US$67,800 (S$90,000) a year.

Global oil prices recovery will help Russia to post a budget deficit of 3.9 per cent of GDP in 2020, less than the 4.4 per cent predicted earlier, Mr Siluanov said.

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