Translated material
It's time to eat!
Russia risks eating up all the additional budget revenues
As expected, today Prime Minister Mikhail Fradkov at an extended meeting of the board of the Ministry of Economic Development and Trade will not only assess the economic results of 2004, but also talk about the prospects for the Russian economy. It is hoped that the head of government will not forget to mention the budget process that has begun, for example, the parameters for increasing expenses, as well as how they will be provided with income.The severity of the discussion, often impartial criticism of the opposing parties, has already forced the prime minister to prohibit his subordinates from commenting on the results of meetings of the government budget commission. Having failed to break the resistance of the head of the Ministry of Finance Alexei Kudrin when considering the issue of reducing VAT to 13% to cover the shortfall in income from the stabilization fund (by the way, his colleague from the Ministry of Finance was supported in this by the head of the Ministry of Economic Development and Trade German Gref), Mikhail Fradkov is now trying to take revenge. At the end of last week, the Budget Commission decided to sharply increase budget revenues in 2006 by withdrawing part of the funds from the stabilization fund.
Starting next year, the stabilization fund will be formed from income from oil exports at a price exceeding $25 per barrel, and not $20 as it is now. According to experts, as a result of such a radical increase in the cut-off price (even at the beginning of last week, Mr. Kudrin assured that he would in every possible way prevent raising the bar above 23 dollars per barrel, and before that he generally proposed not to raise it above 21--21 .5 dollars/barrel) the budget will receive an additional 270--280 billion rubles. The Prime Minister needs this money like air. In February, he promised to double pensions and also double public sector salaries by 2008. This cannot be done without multi-billion dollar additional budget revenues.
Experts have ambivalent assessments of Mr. Fradkov's social innovations. No one argues that wages and pensions need to be increased, but analysts are concerned that such measures are not supported by reforms in the social sector. “The fundamental problems associated with the unfinished pension reform, the unreformed social sector, as well as the ineffectiveness of budget expenditures are not being resolved. That is, we will simply spend all this money,” Alexey Kalinin, senior analyst of the strategic analysis department of the FBK company, told Vremya Novostey.
Injecting a couple of hundred billion rubles into the economy will also affect the level of inflation.
“If we return to the trend of decreasing capital outflow, which would be natural to expect if we hope for investment growth, in this case, an increase in the cut-off price will either lead to an increase in inflation, or the ruble will strengthen. And this strengthening will be quite noticeable, which, although it has its advantages, also creates significant problems for the competitiveness of the economy,” Yevsey Gurvich, head of the Economic Expert Group, told Vremya Novostei.
Although the share of new social expenses in inflation may be significant (according to experts, approximately 200 billion rubles of additional expenses that the authorities were forced to incur this year in connection with monetization will contribute 0.1-0.2 percent to the growth of consumer prices points), however, together with other inflationary factors, it will contribute to exceeding government forecasts. This was the case last year, and the same is expected this year. Now no one, including those in the government itself, doubts that inflation at the end of 2005 will exceed the budgeted level of 8.5%. However, the new official level of 10% seems too low to many. According to the Center for Macroeconomic Analysis and Short-Term Forecasting, inflation in the first three months alone will be about 5% (January-February - 3.9%).
Apparently, new expenses do not threaten the stability of the 2006 budget, although there is a clear weakening of budget policy. “The safety margin is very large. And it’s not worth expecting that there won’t be enough of it yet,” says Mr. Kalinin. He admits that the budget will have enough money for a number of infrastructure projects, the implementation of which was insisted, in particular, by German Gref and the head of the Ministry of Industry and Energy Viktor Khristenko.
According to Evsey Gurvich, taking into account the new expenses, the 2006 budget is quite balanced at a cut-off price of $25 per barrel. “But we will come to the brink of fiscal sustainability. One or two more such steps, and we will have quite high macroeconomic risks,” the economist warns. He draws this conclusion on the basis of a number of forecasts, according to which the price of oil in 2007-2008 may drop to approximately $26 per barrel. However, other analysts have different forecasts - $35-37 per barrel.
Meanwhile, there is another problem that is just waiting for widespread discussion. The fact is that due to the increase in budget expenditures, the amount of 500 billion rubles already collected in the stabilization fund for a rainy day. cannot be a guarantor of budget stability for a sufficiently long period given a sharp decline in oil prices. In other words, in a critical situation, a much larger budget deficit will need to be covered. Therefore, it is possible that the need to increase the volume of the all-Russian piggy bank will become one of the main arguments in the mouths of those who are trying to minimize the use of stabilization fund funds within the country in conditions of favorable foreign economic conditions. For example, Finance Minister Kudrin.