Russia: one-year budgets for the next few years

Last weekend, Prime Minister Dmitry Medvedev stated that structural measures for the medium-term were required from the new plan of actions in the economy, which should be aimed at providing stable growth. “What is growth in the economy?” the Prime Minister asked. “Of course, it is modern enterprises, breaking projects, technological decisions, and finally, an increase in the incomes of our people. Fulfillment of the plan mainly depends on the efficiency of the work on the spot – in the regions and cities. Therefore, the plan requires the allocation of money for the support of regions and regional budgets.” Meanwhile, according to the head of the Audit Chamber, Tatyana Golikova, last year ineffective expenditures of the federal budget amounted to 520 billion rubles; it matched the shortfall in the budgetary income, due to the low oil price of around $40. She said that last year was a missed one for changes in the budgetary expenditures’ structure, while at the beginning of this year the authorities turned on the holding mode which hindered economic growth.

Commenting to Vestnik Kavkaza on ways of cutting the budgetary expenditures, Lyudmila Pronina, Professor of the Economics and Finances Department of the Public Sector in RANEPA, stated that there were two options: “Either they would choose a regime of effecting cuts to expenditure (but this demands a lot of analysis and counting, while ministries and the authorities don’t want to show their reserves or their ineffective expenditures) or they would choose a purely administrative way out (all cuts will be equal, notwithstanding possibilities and efficiency, and they will get a general sum).”

Pronina thinks that it is impossible to launch administrative measures today, as the legislation must be changed for this. However, nobody will manage to do it in time, as a draft on amendments to the federal budget for 2016 must be presented to the State Duma no later than April.

Due to the heavy volatility of the financial and oil-and-gas markets, the federal budget for 2016 was adopted for one year, rather than for three years as it used to be previously. Tatyana Golikova didn’t rule out that the budget for 2017 would be a one-year budget as well: “It depends on a level of certainty and the political will for making decisions today… Without clear strategic measures for the medium-term at least, it will be very difficult to plan a budget for three years.”

At the same time, Lyudmila Pronina thinks that it will also depend on fulfillment of the budget in 2016: “It would be great to return to a three-year budget. By the way, the Ministry of Finances thinks about it. Today amendments to the Budgetary Code are being developed. The direction is supervised by the Deputy Minister of Finances, Alexei Lavrov.”

Pronina reminds that a shift to a three-year budget has been taking place gradually since 2008. Today it concerns not only the federal budget, but also budgets at all levels – regional and local ones. However, according to the economist it is difficult to forecast whether oil prices will fall or grow; thus, there will be no serious structural changes this year.

Neither investment nor innovations and a rise of the retirement age can influence the formation of the budgetary revenues. “Serious revenues and a growth in GDP can be caused by a rise in the retirement age. A draft on a rise of the retirement age has been presented; but the process will take place gradually and take at least 5 years,” the expert said.

“Everything depends on foreign factors,” Lyudmila Pronina is sure. “Analyzing relations with the EU and the USA, we can see that they won’t lift sanctions in 2016 and will prolong them in 2017. The point is that the political situation is not tending toward softening; this causes a difficult economic situation. If sanctions are not lifted, it will be a negative foreign political factor and influence the preservation of a one-year budget in 2017.”

Considering foreign political and internal economic factors, the expert predicts that a one-year budget will be adopted in 2018 as well. The idea is based on major macroeconomic indices – the ruble exchange rate and oil prices. “Heavy volatility makes formation of a three-year budget impossible; it negatively influences the effectiveness of planning,” Lyudmila Pronina stated.