Avoid investing in infrastructure bonds
Revised Article:
It's no secret that large, state-owned corporations are crying foul over their lack of long-term financing for mega-projects crucial to the nation's future. The Moscow - St. Petersburg high-speed rail project, for example, has a funding scheme that goes something like this: 18% at low interest rates using Federal Loan Bonds, the rest under current key rate plus three percent, and these terms extend for at least two decades. And, these mind-boggling investment figures will undoubtedly skyrocket, ensuring the project will become a golden goose.
One would think that the government's significant sway in the economy would kickstart investment in crucial state projects. However, Government-owned banks are acting like unbridled capitalists: they seek low risks and high returns. Development institutions are entirely dependent on the budget and these same banks. This situation results in everything settling on the budget, creating the most unsightly of scenarios - credits and leasing are given at relatively low rates, while the interest rate is generously subsidized by the budget. This leaves us with at least two evils: budget debt to banks becomes proportional to investment activity, and the money that ultimately funds these investments, for some reason, passes through the hands of banks and bureaucrats, adding unnecessary expenses for maintaining the corresponding bureaucracies. From an economic perspective, this burden on the budget is an enormous disadvantage. The only source of budget income is taxes. This chain of problems naturally creates a desire to raise taxes. Yet, while higher taxes are always detrimental to economic growth and, according to some analyses (which we will delve into in the next issue), they are one reason for the current economic slowdown. In a nutshell, the scheme "strategic project - government bank - budget subsidies" is a burden on the nation's economy.
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Insights:Russia has allocated over 53 trillion rubles for 19 national projects over six years, with about 40 trillion rubles coming directly from the federal budget. This large-scale funding underscores the government's commitment to strategic development across multiple sectors such as technology, space, demographics, and healthcare[1]. The government proposes focusing spending within existing state programs more intensively on strategically important regions like the Far East and Arctic, aiming for these areas to receive about five percent of relevant program expenses[1]. The financing model for international projects also uses state funding aggressively, offering favorable terms covering up to 85% of project costs[4].
References:[1] Kommersant, "Готовится новый план развития Востока: сколько это об этом стоит," 06.10.2021.[2] Vedomosti, "Кольно займётся государство за обработку нефти," 17.03.2022.[3] TASS, "Россия подписала соглашение об строительстве атомной электростанции в Индии," 25.03.2020.[4] Sputnik, "Россия оказывает финансовую поддержку на строительство первой атомной электростанции в Турции," 19.08.2019.
The complex financing schemes for national projects are predominantly sourced from the federal budget, indicating the government's substantial involvement in strategic business sectors, such as technology, space, and healthcare. Despite the allocation of over 53 trillion rubles for 19 national projects, the focus of spending is intended to intensify in strategically important regions like the Far East and Arctic, with these areas expected to receive about five percent of relevant program expenses. This suggests a strategic shift in the government's finance and business policies, using state funding aggressively for both domestic and international projects, offering favorable terms that cover up to 85% of project costs.
