Prime Minister Dmitry Medvedev held meeting on budget matters with the government's economic bloc recently. It was a working meeting and its results were not announced, but it is known that at the meeting Finance Minister Anton Siluanov presented the first calculations of the Ministry of Finance for the necessary correction of the budget for 2015-2017 due to lower oil and gas revenues and the devaluation of the ruble.
Budget will be cut back and reserves will be spent, says Russian Ministry of FinancePrime Minister Dmitry Medvedev held meeting on budget matters with the government's economic bloc recently. It was a working meeting and its results were not announced, but it is known that at the meeting Finance Minister Anton Siluanov presented the first calculations of the Ministry of Finance for the necessary correction of the budget for 2015-2017 due to lower oil and gas revenues and the devaluation of the ruble.The main proposals of the Ministry of Finance in 2015 are as follows: increasing the GDP budget deficit up to 3.5%, indexation of social and regional spending by 0.5 trillion rubles, cutting other costs by 1 trillion rubles and spending more than 70% of the current volume of the Reserve Fund. In 2016 the government expects GDP growth of 2.4% after declining by 4% in 2015. Those estimations look moderately optimistic, despite the expected losses from the crisis not being less than 4 trillion rubles, Kommersant writes.The main idea of the meeting was that the conservation of the former budget structure no longer even technically exists without reducing government spending options: Russia does not have the the right amounts in the Reserve Fund, and if the situation stays unchanged, the budget deficit in 2015 will be about 5% of GDP, and the oil and gas deficit – about 13 %.According to macroeconomic forecasts of the Ministry of Finance laid out in the budget estimates, if the oil price in 2015 is $60 per barrel (followed by a slight increase of up to $70 per barrel in 2017), Russia expects a GDP decline of 4% with a rebound in 2015 to 2.4% and subsequent growth of 1.6%, the newspaper said, citing sources familiar with the meeting.These assumptions are also based on an average exchange rate of the ruble against the dollar of 51 rubles per dollar until 2017 and forecasted inflation of 10% in 2015, slowing to 4% in 2017. A significant slowdown in inflation eliminates the likelihood of another explosion in private consumption. However, the Ministry of Finance forecasts a growth in the nationwide payroll in 2016 to the levels of 2015 by 1.8 trillion rubles (to be 20.1 trillion rubles (9.9%)), and by 1.4% in 2017 (to be 21.5 trillion rubles (6.6%)).New macroeconomic conditions increase the annual assessment of the budget deficit from 0.6% of GDP in 2015-2017, as had been planned in the law, in fact up to 4%. In this case, after a peak in 2015, the budget will have a deficit even if the economy returns to growth.Irreducible budget expenditures in 2015 are up to almost 5 trillion rubles, and the reduction is about 10 trillion rubles. Thus, the task of the government in general and the Ministry of Finance in particular is to find the missing amounts of about 3.5-4 trillion rubles. Most of these funds, according to the plans of the finance department, should be taken from the Reserve Fund (about 3.5 trillion rubles), which thus at the end of 2015 will remain at about 1 trillion rubles.
The main proposals of the Ministry of Finance in 2015 are as follows: increasing the GDP budget deficit up to 3.5%, indexation of social and regional spending by 0.5 trillion rubles, cutting other costs by 1 trillion rubles and spending more than 70% of the current volume of the Reserve Fund. In 2016 the government expects GDP growth of 2.4% after declining by 4% in 2015. Those estimations look moderately optimistic, despite the expected losses from the crisis not being less than 4 trillion rubles, Kommersant writes.
The main idea of the meeting was that the conservation of the former budget structure no longer even technically exists without reducing government spending options: Russia does not have the the right amounts in the Reserve Fund, and if the situation stays unchanged, the budget deficit in 2015 will be about 5% of GDP, and the oil and gas deficit – about 13 %.
According to macroeconomic forecasts of the Ministry of Finance laid out in the budget estimates, if the oil price in 2015 is $60 per barrel (followed by a slight increase of up to $70 per barrel in 2017), Russia expects a GDP decline of 4% with a rebound in 2015 to 2.4% and subsequent growth of 1.6%, the newspaper said, citing sources familiar with the meeting.
These assumptions are also based on an average exchange rate of the ruble against the dollar of 51 rubles per dollar until 2017 and forecasted inflation of 10% in 2015, slowing to 4% in 2017. A significant slowdown in inflation eliminates the likelihood of another explosion in private consumption. However, the Ministry of Finance forecasts a growth in the nationwide payroll in 2016 to the levels of 2015 by 1.8 trillion rubles (to be 20.1 trillion rubles (9.9%)), and by 1.4% in 2017 (to be 21.5 trillion rubles (6.6%)).
New macroeconomic conditions increase the annual assessment of the budget deficit from 0.6% of GDP in 2015-2017, as had been planned in the law, in fact up to 4%. In this case, after a peak in 2015, the budget will have a deficit even if the economy returns to growth.
Irreducible budget expenditures in 2015 are up to almost 5 trillion rubles, and the reduction is about 10 trillion rubles. Thus, the task of the government in general and the Ministry of Finance in particular is to find the missing amounts of about 3.5-4 trillion rubles. Most of these funds, according to the plans of the finance department, should be taken from the Reserve Fund (about 3.5 trillion rubles), which thus at the end of 2015 will remain at about 1 trillion rubles.
The Director of the Russian Presidential Academy of National Economics and Public Administration Alexander Deriugin stated in an interview with Vestnilk Kavkaza that, in terms of the balance of income and expenditure, 2015 will not be the worst year.
"Apparently, inflation in the coming year will be higher than planned in the budget law, as is the possibility of social and economic development. And so, as our indexation costs are always laging behind actual inflation and our income goes along with inflation, then the costs in 2015 will not grow as fast. But in 2016, when inflation is sure to be slowing, spending will be indexed more quickly, so the year will be more difficult," the expert said.
In addition, due to the fact that the reserve fund will be more than half used up in 2015, we would have to cut the costs," Alexander Deriugin said, stressing that in this sense the budget in 2016 will be more intense: "For this cause I think that it may be be appropriate to revise the costs in 2015 for more than is planned. Therefore, I think the budget for 2015 should be revised in order to reduce its deficit, or 2016 will be extremely difficult for us," concluded the director of the Center for Research IPEA RANHiGS regional reforms.
As the head of the Center for Post-Soviet Studies of the Economics Institute of the Russian Academy of Sciences, Leonid Vardomsky, stated to Vestnilk Kavkaza, it is a trend in Russia to worsen the situation and present it as really bad, so that then in case there is a positive development they are able to talk about success: "Look at us, we are so fine and clever, we ruled and directed the situation and now there is no deficit and only surplus. This is how it goes. So no one should pay any attention to such statements, especially Vestnik Kavkaza. Those are for experts, economists, macroeconomists, as well as insurance for officials. As for the Fund, we should probably spend it sequentially and according to needs, rather than all at once," the expert said.
