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Putin's pre-election social payments may cost $6.75 billion, add to inflation

| Aug 23, 2021 03:39 PM EDT

Russian President Vladimir Putin delivers a speech during the opening ceremony of the International military-technical forum "Army-2021" at Patriot Congress and Exhibition Centre in Moscow Region

Social payments to pensioners and soldiers announced by President Vladimir Putin before an election next month could cost the budget more than 500 billion roubles ($6.75 billion), Andrei Makarov, a senior lawmaker, said on Monday.

Putin on Sunday said military personnel will receive a one-off payment of 15,000 roubles ($202.41) and pensioners will get 10,000 roubles, in a move designed to help cope with high inflation.

"Initial calculations show that processing the payments will require more than 500 billion roubles," said Makarov, the head of the Duma's budget committee, according to the website of the ruling United Russia party.

Makarov said payments would be financed from additional budget revenue.

Russia's finance ministry and the central bank did not immediately respond to a request for comment on the state spending that is seen as putting extra pressure on the budget and complicating the task to rein in inflation.

The proposed spending could total 460-480 billion roubles, which will add 0.2 percentage point to 2021 gross domestic product growth as well as to inflation, said Sofia Donets, chief economist at Renaissance Capital.

Dmitry Dolgin from ING said Putin's promises could cost 450 billion roubles, which will have a positive impact on economic growth.

"This keeps in place the chance that the central bank will decide to raise the key rate by 50 basis points in September and to wrap up the cycle," said Donets who previously worked at the central bank's monetary policy department.

The central bank raised the key rate four times this year to rein in stubbornly high inflation, which aggravates a decline in real disposable incomes, a sensitive issue ahead of elections.

Contemplating annual inflation at around 6.5%, the level of its key rate and above the 4% target, the central bank will next meet on rates on Sept. 10.

($1 = 74.1057 roubles)

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