The Russian economy could record zero growth this year, the finance minister has warned, amid growing spending on Crimea and capital flight.
Finance minister Anton Siluanov said at a government meeting on Tuesday that Russia’s economy faced “the most difficult conditions since the 2008 crisis”, Russian news agencies reported.
“GDP growth is estimated as rather low – 0.5 per cent,” he said.
“Perhaps it will be around zero.”
Russia has seen growth fall from 4.3 per cent in 2011 to 1.3 per cent last year, blamed by experts on its overdependence on energy exports and failure to modernise the economy.
The latest figure follows a series of increasingly low outlooks this month.
The International Monetary Fund has cut its growth forecast to 1.3 per cent and Russia’s economic development ministry estimated 0.6 per cent and capital flight of $100 billion.
Siluanov added that capital flight amounted to $63 billion in the first three months of the year, saying this was mainly due to geopolitical instability – a reference to Russia’s involvement in the Ukraine crisis and the rising tensions in eastern Ukraine.
He said that the capital flight was the result of massive conversion of rubles into foreign currencies due to “risks seen by the population and by investors”.
“Continuing capital flight lowers the opportunities for economic investment and creates risks of an unbalanced budget,” he said.
“The main reason for capital flight is instability in the way the geopolitical situation develops.”
Siluvanov also cautioned Prime Minister Dmitry Medvedev against overspending on the Crimean peninsula, which was annexed along port city of Sevastopol as Russia’s two newest regions last month to the condemnation of Western countries.
Russia has promised significant increases in salaries and pensions to Crimea’s residents, and the government plans colossal investment into the peninsula’s infrastructure as well as help to the tourism industry ahead of the summer season.