President Vladimir Putin conceded for the first time on Thursday that Russia's economic problems were home-grown but vowed not to abandon the spending promises he made on returning to the Kremlin last year.
Putin's third presidential term has been marked by a slowdown and the government has slashed its forecast for economic growth this year to 1.4 percent.
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Long-term growth is likely to average 2.5 percent, lagging the world economy and other emerging markets. The government meanwhile risks exhausting its rainy-day savings in three years, officials warn.
"We have to be clear: The main reasons for the economic slowdown are not external but internal," Putin said in an annual address to lawmakers and officials in the Kremlin.
Putin had previously blamed weak global conditions for Russia's economic slowdown but with the price of oil - Russia's main export - in triple digits economists say his diagnosis is wide of the mark.
Putin said low labor productivity was a major drag on Russia's $2 trillion economy, ranked by the World Bank as the fifth biggest in the world by purchasing power parity.
"Russia is among the top-five global economies," Putin said. "However we lag developed countries by two-thirds to three-quarters on such a key indicator as labor productivity."
Despite the weaker economy, Putin said he would follow through on the so-called 'May decrees' he promulgated on returning to office that include doubling pay for teachers and doctors by the end of his six-year term.
"The economic cycle can and is changing, but this is no reason to talk about revising our goals," Putin said.
He said, however, that pay rises must be tied to improved public services.
"This means increasing the personal responsibility of every manager for achieving results," he said.
(Writing by Douglas Busvine, Edting by Timothy Heritage)