Vladimir Putin. Picture: AFP PHOTO/ALEXEI NIKOLSKY
Vladimir Putin. Picture: AFP PHOTO/ALEXEI NIKOLSKY

MOSCOW — Russia’s economy contracted by 3.7% in 2015, the largest annual contraction since 2009, the country’s statistics service said on Monday, citing preliminary data.

Russia’s economy has been battered by low oil prices, Western sanctions and a falling rouble.

The government has set aside 135-billion roubles ($1.7bn) to help the real economy in a draft anti-crisis plan, two senior officials said, and may use a separate 340 billion rouble cushion to dampen social discontent, according to a third source.

Russia is torn between the need to support its shrinking economy and its desire to preserve funds to help it navigate one of its worst downturns since Vladimir Putin came to power.

Two senior officials told Reuters on condition of anonymity that an anti-crisis plan had been drawn up which earmarked 135-billion roubles to help parts of the real economy. The funds were drawn from unspent budget money from 2015, they said.

The railway and agricultural machinery industries, the consumer goods manufacturing and the construction sectors would receive some of the funds, one of the sources said. Russia’s car industry had already been promised 50-billion of the 135 billion roubles, the other source said.

The finance ministry, which controls the anti-crisis fund, was against spending all the money, one of the senior officials said. A final decision on which sectors would benefit and by how much had yet to be agreed.

Most of the aid will be in the form of subsidies and state guarantees to share the risk with banks and reduce borrowing costs.

"Our revenues have fallen because of recent events on the oil market, not grown, so why should we discuss an increase in spending?" one of the sources said.

The finance ministry declined to comment.

Quelling discontent

Parts of Russian industry have struggled to get bank loans because the banking sector itself is not able to access Western finance due to sanctions related to the Ukraine crisis.

One of the sources said funding for the anti-crisis package could, if necessary, be increased thanks to 340-billion roubles in funds accrued from freezing pension transfers.

The likelihood of that happening was "very low", however, the source said.

Several economic advisers to Mr Putin say his preference is to preserve the country’s reserves even if that means economic growth suffers.

The economy is expected to shrink by up to 1% this year.

The 340-billion roubles — accumulated thanks to a moratorium on transferring money to nonstate pension funds — may in part be used to keep a lid on social discontent by supporting employment and helping offset increases in drug prices, one of the officials said.

Parliamentary elections are due to be held in September and a presidential election in 2018.

Sources have previously told Reuters that the 340-billion roubles may be used later this year to increase pensions.

Russia said it was prepared to spend up to 2.3-trillion roubles on anti-crisis measures in 2015. That included state guarantees and support for the auto industry and other sectors. It did not enact all the measures it envisaged.

Russia’s banking system received about 1-trillion roubles in support in late 2014 and the authorities are considering how much money they are willing to spend on helping state development bank VEB.

Sources familiar with those discussions have told Reuters the amount will be less than initially planned.

Reuters