Russia's parliament on Friday approved a first reading of a budget that would cut spending in key sectors, a move that has sparked fears it could cripple the nascent recovery. The 2017-2019 budget was approved by a 334-to-100 vote in the State Duma. It must pass two more readings before it can be approved by the senate and President Vladimir Putin.
Putin - who became president less than two years after the country defaulted on its foreign debt in 1998 - has pledged to keep the country's finances under control despite a sharp drop in energy prices. The draft budget aims to reduce the deficit to 3.2 percent of the GDP next year, before reducing it to 2.2 percent in 2018 and 1.2 percent in 2019. But reducing the deficit comes at a high price that includes significant cuts in a wide array of sectors ranging from education to military spending. Economists now fear that spending cuts could hinder Russia's efforts to pull itself out of a two-year recession caused by Western sanctions and depressed energy prices.
Russia's Chamber of Commerce and Industry said that the draft budget represents a "risk for growth prospects", while the Union of Industrialists and Entrepreneurs said it was a "stabilisation and stagnation" budget rather than one focussed on growth. The Duma's Communist and nationalist factions also slammed the draft budget, with long-time Communist party leader Gennady Zyuganov telling Russian media that it was "anti-social" and would "inevitably lead to a political crisis".
Finance Minister Anton Siluanov meanwhile defended the budget's austerity, saying it was a "condition to guarantee solid growth." Ministries will see their overall funding cut by six percent next year, before it is further slashed by nine percent in 2018 and by 11 percent in 2019.
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