If these two key factors that may improve the foundation of the Russian economy, in foreign and domestic policy, are not engaged, the economic situation in Russia will remain gloomy. Lacking investment growth, 2 percent growth will be the dream, while on average the growth rate will not exceed 1 percent per year, and in fact from time to time dip below zero. The two centerpiece questions of the economic policy will remain focused on the budget: (1) Will Putin continue to support the limit on the budget deficit at 3 percent of GDP? In other words, will he be ready to sacrifice households’ living standards and the quality of the public sector, since limiting the deficit in a stagnating economy will require further cuts or underfinancing of public expenditures, and/or increasing the tax burden? Moreover, the Ministry of Finance and Alexei Kudrin have demanded loudly and publicly to cut the deficit by up to 1 percent within three years, which will require even stronger budgetary consolidation. (2) As the Ministry of Finance is banned from borrowing in Western capital markets, and is constrained by the lack of long-term capital in Russia, it cannot use its borrowings to finance the deficit while the stock of assets for privatization is limited. For the coming two and a half years the deficit (if it remains at 3 percent) could be financed by reserve funds, which should be depleted by the end of 2018. Will Putin allow the monetary financing of the Central Bank (in one form or another) to be used on a permanent basis? Such financing took place in 2014–15, being equal to 0.5–0.8 percent of GDP. But such a proposal, being bigger in size, will undermine the job of the CBR in fighting inflation and will distort macroeconomic fundamentals.

I would not say that the Russian government utterly lacks tools that may be used without radically changing the political landscape, and that may improve (albeit slightly) the economic situation. For example, the Russian government may enforce competition in the oil sector by facilitating the activity of small companies, which produce less than 10 percent of oil in Russia (compared to over 50 percent in the United States), or in the gas sector by spinning off the pipeline system from Gazprom and providing all gas producers with equal access to its capacities. Experts, led by Alexei Kudrin within his job at the presidential economic council, will definitely furnish other ideas, as many of them believe that the situation in the Russian economy may be improved by small steps without radical reforms. I doubt this, and believe that even the effects of positive decisions without political change will be significantly eroded and thus limited.

Concluding my forecast, I want to reemphasize that there is no reason for an economic collapse in Russia, but neither are there any signals that the Russian economy can avoid a long period of stagnation/sluggish growth. There is no space for a catastrophe compared even slightly to 1991–92, when the Soviet Union collapsed, though the Russian people’s standard of living Russian people may deteriorate further. But in the long run, lacking political reforms, the Russian economy will be much less competitive and less attractive.

Sergey Aleksashenko is the former first deputy chairman of Russia's Central Bank and a former deputy finance minister.

Image: Russian rubles. Wikimedia Commons/Petar Milošević.