Sergey Ryabukhin: “Economy needs long-term, available, low-price loans”

– Today we sum up the results of the autumn session. The session was one of the most difficult for your committee – the budget was adopted in a difficult economic time. The budget was adopted for a short-term perspective – only for a year. It was adopted according to $50 per barrel. But today oil prices are lower than $40, the difference is quite serious. How will the difference be compensated for?

– The budget is tense, and it was difficult to develop it at the initial stage. The budget for 2016 was presented by the government not on October 1st, as it has to be, according to the regulations and requirements of the Budgetary Code. The government asked for a month from the Federation Assembly to check macroeconomic amended indices.

Unfortunately, a significant factor is still the oil price. At the same time, the President has many times demanded a diversification of the economic structure from the government to make it less dependent on oil prices on the world market.

26-28% of the revenue structure of the consolidated budget of the country are oil revenues. They are 50 percent of the federal budget. It is a very high index. The economy will become more independent of prices on the world oil and gas markets if the source of the revenues doesn’t exceed 6-8 percent. We should strive for this. There are programs of diversification, structural changes in the economy. However, we are losing time. The president set the task two years ago, but no clear program of diversification was developed. Therefore, it is very important what oil prices we will have.

The adopted budget is tense, but balanced, as we expect higher revenues than in 2015. According to forecasts, we expect about 13.2 trillion rubles in 2015. In 2016, revenues are planned for 13.7 trillion rubles. Expenditures will be a bit higher. Expenditures will be 16.1 trillion rubles, i.e. the deficit will be 2.4 trillion rubles. It is equal to 3 percent of GDP. GDP is very high, 87 trillion rubles. However, 3% is a stimulating volume of deficit. The majority of countries of Europe and the world have such a limit. It motivates not only the monetary authorities, not in general the government to spend federal budget resources more effectively, which are allocated to the real sector of economy, reconstruction of economy, and expenditures of a social nature. The government has managed to fulfill the task set by the President that social expenditure won’t be lower than in 2015 – it is about 28%.

– Is the budget still socially oriented?

– Yes, it is. The government met the Federal Assembly halfway. When the government sent the main characteristics and settings of the budgets for 2016 for analysis to the Audit Chamber and the Federal Assembly, we carried out parliamentary hearings. As a result, we have developed our suggestions on 12 pages and sent it not only to the government, but also to our colleagues in the State Duma who have supported us.

The majority of our suggestions were taken into account. We managed to find palliative approaches toward the government in such difficult times. They increased the volume of budgetary loans for the balanced state of regional budgets, for substitution of commercial loans by budgetary loans. Commercial loans are very big! The regional debt together with municipal debt is 2.4 trillion rubles. 2.1 trillion rubles are regional debts, and the volume is very big, there are about 1 trillion rubles of commercial debts; and 0.33 trillion rubles are debts of municipal entities.

– Commercial banks do not care who takes their loans, but the rate is higher, 17-18%, isn’t it?

– These are very significant amendments which we have developed, while the government and the State Duma supported us. Moreover, there are several suggestions of a social nature. 50 billion rubles will be allocated to modernization of schools and construction of new educational facilities. The Caucasus republics lack schools. The existing schools demand modernization. A long-term program of construction and modernization of schools until 2025 has already been adopted. 2.7 trillion rubles have been allocated to it.

The responsible committee of the Federation Council and the Ministry of Education and the Ministry of Construction discuss the criteria for defining the way in which the resources will be allocated in regions. The Premier once noted that we live in the 21st century, but in some schools the toilets are situated outside the building; this is unacceptable.

– Probably it is necessary to build another school or a couple of them…

– Yes, it is, firstly. Secondly, it is important to pay attention to the state of a school. Some schools were built in the early 20th century. It must be taken into account.

Before the new financial year, we have to consider methods from the point of view of transparency, independence and sufficiency. It is necessary that these methods are considered not only within the Budgetary Committee, but also by our colleagues from the committees for science, culture, education, healthcare. Then, resources will be spent effectively in the new financial year. It is one of the main demands, according to efficiency of spending federal budget resources.

– How much allocated money is not implemented by regions?

– There are such facts. We have more than a hundred Chief Allocators of Budget Resources (CABR). According to the Audit Chamber, last year the sum exceeded 130 billion rubles. Speaking about the federal target investment program, FTIP, referring to reports by the Audit Chamber, we can see that volumes of non-implemented resources are huge. These are about 2 trillion rubles – construction of 9000 facilities hasn’t been finished. 

It is necessary to restore order here. It is not allowed to finance objects without design of projects. If there are projects on the list of investment programs obtained by lobbyists without the design of projects that require two or three months, as well as the conclusion of state analysis. This creates very large risks. Firstly, the design of the project will be made post fact with an overrating. Secondly, the analysis cannot just accept it. They receive such long lists, the object list that cannot be accepted for financing. The government is not allowed to finance such objects, nor include them on the object list.

The government agreed with our demand that all costs associated with public corporations (means from the federal budget in the form of authorized capital of state-owned corporations, state-owned companies) have to pass strictly through the Russian treasury. How has it been before? The budget was transferred through the funds of the Ministry of Finance to a state corporation. The state corporation enters them in its accounts and places deposits in banks, receives interest that accumulates there and then they enter them not into the federal budget, but as corporate earnings.

– And then bonuses and other things.

– It doesn’t motivate the effectiveness of spending. It is more profitable for the head of the corporation to keep money in an account in the bank and receive interest. It concerns nanotechnology, Rostec, Rosatom. All these corporations receive funds from the federal budget to the authorized capital. From January 1st we will monitor how the new mechanism works. All transfers, all movements of funds from the federal budget have to be carried out only through the federal treasury.

The next tool is the number of state procurements for both state and municipal needs. There are a lot of problems and abuses at this level. Recently there was information that one of the leaders of the Defense Ministry engaged in public procurement was arrested. As for the Defense Ministry, Defense Minister Sergey Shoigu is introducing a proper order together with the law enforcement agencies, the Federal Security Service, the Prosecutor's Office Investigative Committee regarding essential investments related to national defense and safety. The President demands all of the federal fund managers to put things order. This is especially topical in terms of sanctions and external threats.

– It is obvious that if money is allocated in order for it to work in the economy, then it should work in the economy, rather than sit in accounts.

–  A strict judicial system and law enforcement actions are necessary. We can constantly speak about transparency, effectiveness of expenditures in terms of preventing robbery, inefficient expenditures, misuse of expenditures, but the main thing is economic growth. It is necessary for revenues not to be symbolic and for economic growth not to be symbolic, as well as so the number of profitable enterprises could grow in the regions. We speak about a debt of the regional budget amounting to 2.4 trillion. The regional budgets have two sources of income: income tax and personal income tax. The first is 42% of all taxes in the structure. The second is 29.7% (according to results of the last year). Two of these tax revenues of 72% form the regional budget. Property tax entities is in third place (10.2%). The excise duty and all the rest are less than 3-5%. The regional authorities in the field of finance and management should work on the creation of favorable conditions for the development of medium-sized and small business, as well the economy as a whole.

However, the structure of the economy is defective now due to the fact that there is no well thought-out program in mechanical engineering and the processing. We have lagged behind in this sphere. 28% of the consolidated revenues of the country are oil and gas. Agriculture has a good dynamic now. Implementation of agricultural products exceeds arms exports incomes. This is a very good indicator. The trend of the development of agriculture has to be preserved because we have great potential. It is no coincidence that the President pointed out that 40 million hectares of land should be used effectively.

It is necessary to create conditions to satisfy the following three terms: long, available, and cheap loans in order to make a startup of the economy. And it is a big problem. There is a delay in development due to lack of working capital in the real economy. Therefore, the government achieved modest results of GDP growth, only 0.7%. Though it is necessary to achieve a steady 3-5%. The President noted the problem at the Economic Forum in St. Petersburg that I call ''program 3, 4, 5." The annual economic growth was at least 3% of GDP in order to avoid 4% inflation. Moreover, the labor productivity should not be less than 5%.

If we look at the forecast of socio-economic development proposed by the Ministry of Economic Development for the next year we will see that in our annual budget we have a feature of a one year horizon due to the current situation around Russia, just for one year. But the forecast of socio-economic development is still for three years. If we stick to the trend of the ''3, 4, 5 development program'' in this case we will have sustainable regional budgets. If the economy grows, then everything will fall into place."

If we look at the forecast of socio-economic development proposed by the Ministry of Economic Development for the next year we will see that our annual budget we have a feature of the one year horizon due to the current situation around Russia, just for one year. But the forecast of socio-economic development is still for three years. If we stick to the trend of the ''3, 4, 5 development program'' in this case we will have sustainable regional budgets. If the economy grows then everything will fall into place.

– Forecasts of economic development are designed for three years, although the budget is short-term. The Ministry of Economic Development is often criticized. Perhaps this is also one of the factors that hinders the process, when people cannot rely on their business because the long-term perspective must get out on a short-term basis. The Central Bank has recently announced its crisis scenario. According to it, the oil price is $35 and the rate of the Russian currency is undervalued by 10-20%. Next year’s inflation is 8%. This is the Central Bank’s crisis scenario. It is very positive regarding inflation. How do you appreciate this scenario?

– The Central Bank follows the recommendations that we formulated at the end of last year. A powerful attack on the ruble happened at that time. 7.5 million rubles were thrown in the stock market in order to destabilize the national currency and the Central Bank. We have held a government hour in the Federation Council, put forward counter-proposals on 10 pages. Many of the proposals formulated in the Federation Council were taken into account. And it allowed us to stabilize the situation, create a balance with the national currency. The tendency to calmness on the stock market and the strengthening of the national currency is being maintained now.

Why does it contain a negative, critical scenario? Unfortunately, the project financing is only at the very beginning. In the previous year, we received the first experience of introducing project financing. Now this experience should be fully extended. If we use the currency issue to cover the deficit in the real sector, then you need to create a mechanism of project financing in order to prevent currency speculation and not to provoke inflation, as well as not to convert the money and let it go to offshore zones. We need a package of measures so that the money could reach the key sectors of the economy.

The President said that it was necessary to create global infrastructure projects: roads, railways, airports, ports, marinas and housing. It is always in demand and it is always used as a tool to overcome a crisis. It always has been. It was used in terms of growth in national economies by the Americans, Germans, Japanese and Koreans.

We see the priority sectors that preserved competence, competence centers that we can use as a point of economic growth. And the most important, as a source of infrastructure solutions and global challenges. When the volume of marketable products and services correspond to the amount of money, then we can feel protected from hyperinflation. In this case we 'charge' the economy to rapid growth. As soon as we implement a set of tools to the real economy, then enterprises will start working. It will lead to VAT income tax, the main source of the federal budget, together with fees of 42% and 22%.

The federal program on stability and balance of regional budgets approved by the government doesn’t work now because regional budgets have not been balanced yet. The program was approved, but it has no result. Together with the Audit Chamber we are preparing proposals now. The Audit Chamber is to take place take place in late January. Then we will examine it at the committee and adjust the proposals for a new concept of inter-budgetary relations.

After all the breakthrough measures are taken that allow at least to stabilize the growing debt of the regions, we will be able to engage in the global challenge, the real sector of the economy. We mean enterprises’ profits of medium-sized and small businesses, so that they don’t hide and withdraw into the shadows. Today the tools of control are very weak and governors are often not interested in turning them into a clear form.

I will give an example. When the index is determined by the governor’s performance indicator in respect of the implementation of the presidential decree on wages. Only the average wages of a large segment of industry were taken into account. Wages of car factories, aviation, metallurgical, medium-sized and small businesses were not taken into account. Now the government has included average wages of medium-sized and small businesses in the index. Now the governor together with his fiscal territorial authorities and financial authorities have to monitor this indicator and tighten the wages of teachers and doctors, taking into account this circumstance. It is a very important factor.

The main source of inflationary expectations is natural monopoly tariffs. The government made the growth of these tariffs less than inflation. It's good. But as a rule, state corporations and large monopolies tie the volume of these tariffs with investment programs. This cannot be allowed to happen. Investment programs should not suffer, because if they are reduced then the amount of expected investments will be less. And consequently, income and revenues of the federal budget in the regions will also be smaller.

We rejoice that the tariffs of natural monopolies will be smaller, but we are afraid of a reduction of investment programs. It will affect the economy as a result of economic performance next year. The situation should not only be under the government’s control. Our profile committee will monitor this very important factor of balancing the economy and the budget.