15 June 2004 16:02
FINANCE MINISTRY PREPARES 2005 BUDGET WITH 1% SURPLUS
The increase in spending, mostly subsidies for the Pension Fund,
will be covered out of the stabilization fund, which the Finance
MOSCOW. June 15 (Interfax) - The Finance Ministry has submitted the key parameters for the 2005 budget to the
government with a surplus of 1%of GDP despite a gross increase in non-interest related expenses, namely due to an
increase in subsidies to the Pension Fund after it lost revenue when the single tax was lowered.
Ministry expects will top 500 billion rubles.
rubles or 17.2% of GDP in 2005. This includes tax revenue of 1.854
trillion rubles, or 10.3% of GDP, non-tax revenue of 988.4 billion
The government will consider the 2005 budget figures on June 17. Draft 2005 Budget
The Finance Ministry plans federal budget revenue of 3.103 trillion
rubles or 5.5% of GDP, and revenue from the single social tax of 260.2 billion rubles or 1.4% of GDP.
Federal budget spending for 2005 is planned at 2.916 trillion rubles or 16.1% of GDP. This includes interest expenses
of 255.8 billion rubles or 1.4% of GDP and non-interest expenses of 2.660 trillion rubles or 14.7% of GDP. Non-interest
expenses will grow 280 billion rubles next year from 2004.
The federal budget surplus is planned at 187.01 billion rubles or 1% of GDP.
3.304 trillion rubles, or 16% of GDP, spending would total 3.275
trillion rubles or 15.9% of GDP, and the surplus is planned at 28.4
The average exchange rate for the ruble to the U.S. dollar will be 30.2 rubles/$1 and GDP is planned at 18.08
trillion rubles.
The 2005 budget was planned taking into account the delimitation of revenue sources and spending between the federal
center and the regions, the elimination of non-financial mandates, and tax changes, specifically the drop in the base
rate for the single social tax from 35.6% to 26%.
The Finance Ministry also drafted a financial plan for 2006 and 2007. The exchange rate in 2006 is planned at 30.8
rubles/$1 and GDP is planned at 20.62 trillion rubles. Federal budget revenue is planned at
billion rubles, or 0.1% of GDP.
Defense spending is expected to jump 19.2% compared to this year to
519.5 billion rubles, which amounts to 17.8% of overall spending,
The exchange rate in 2007 is planned at 31 rubles/$1 and GDP is planned at 23.45 trillion rubles. Budget revenue
would total 3.598 trillion rubles, or 15.3% of GDP, spending is planned at 3.523 trillion rubles or 15% of GDP, and the
surplus is planned at 74.77 billion rubles or 0.3% of GDP. Finance Ministry suggests raising budget spending on defense,
economy
Spending on defense, security and law enforcement will constitute about 31% of overall federal budget spending in
2005, according to Finance Ministry documents submitted to the Cabinet together with key indices of the 2005 federal
budget.
Some 30% will be redirected to territorial and local coffers.
national security and law enforcement spending 18.9% to 388.3 billion rubles (13.3%) respectively.
Spending on the national economy should soar 22.1% to 201.9 billion rubles (6.9%).
Following the transfer of education funding to the territories federal spending on education will be cut 16.4% to
101.4 billion rubles (3.5% of total spending). Meanwhile, spending on health protection and sports will grow 2.3% to
49.7 billion rubles, on culture, film-making and the mass media 7.8% to 29.5 billion rubles (1%), on social programs 2%
to 154.5 billion rubles (5.3%) and on environmental protection 1.13% to 4.3 billion rubles (0.1%). Stabilization Fund To
Help
The Finance Ministry plans to begin using money from the stabilization fund, which accumulates revenue from high oil
prices, next year to cover the budget deficit for the Pension Fund and general imbalances in the federal budget.
"Federal budget spending for 2005 and subsequent years is planned based on the need to balance the Pension Fund
budget, which will have a deficit in the mid-term of 1% - 1.2% of GDP," the ministry said in the report.
"With limited opportunity for domestic and foreign borrowing, uncertainty on world capital markets, one way: of
keeping non-interest spending at the necessary level is to use money from the stabilization fund:in excess of the 500
billion ruble base level that is untouchable," the report said.
The stabilization fund in excess of the base level will be used to cover the Pension Fund budget deficit and pay the
foreign debt.
Russia will pay $17.4 billion on foreign debt payments in 2005, up
from $16.1 billion in 2004, the Finance Ministry says in materials
According to the Finance Ministry, the stabilization fund in 2005 will start with 417.06 billion rubles and will
receive 267.67 billion rubles during the year, 91.57 billion rubles of which will be used to balance the budget by
revenue source and 80.95 billion rubles to cover the Pension Fund deficit. The stabilization fund will end 2005 with
512.21 billion rubles.
Principal foreign debt payments will increase by $2.2 billion in
2005 to $11.2 billion due to an increase to $1.7 billion from $700
million on a Finance Ministry loan from the Central Bank of Russia,
The ministry said the fund would receive 226.339 billion rubles in 2006 and 40.62 billion rubles will be used to
cover revenue sources and 197.94 billion rubles for the Pension Fund budget deficit. The stabilization fund will thus
have 500 billion rubles at the close of 2006.
Revenue to the fund in 2007 is forecast at 184.85 billion rubles. The government will use 74.77 billion rubles to
balance revenue sources and 110.08 billion rubles for the Pension Fund deficit, so the fund will close 2007 with 500
billion rubles. Russia to pay $17.5 bln on foreign debt in 2005
submitted to the government with 2005 budget parameters.
allocated by Vnesheconombank, and a significant increase in Eurobond redemption payments to $4.9 billion.
Principal debt payments to international financial organizations will total $2.2 billion in 2005, including $1.25
billion to the International Monetary Fund, and $900 million to the International Bank for Reconstruction and
Development (IBRD) and European Bank for Reconstruction and Development. Russia plans to pay $4.1 billion on debts to
foreign governments, including $3.2 billion on Soviet-era foreign debt.
Interest payments in 2005 are planned to drop by $900 million to $6.2 billion. The payments will drop due to a
reduction in foreign debt in 2004. Finance Ministry plans ruble bond issues for 2005
The Finance Ministry plans to place 18 billion to 20 billion rubles in GKO bonds, 158 billion to 160 billion in OFZ
bonds and 53 billion to 55 billion in government savings bonds (GSO) in 2005, materials submitted to the government with
2005 budget parameters say.
The GKO bonds will have terms of up to one year and yield of up to 6%. They should raise 16.4 billion rubles for the
budget in 2005.
Yield for mid-and long-term instruments is planned at 7% to 10%. The ministry expects to raise 73.3 billion rubles in
fixed coupon OFZ (OFZ-FK), 70.8 billion rubles in amortization bonds (OFZ-AD) and 50 billion rubles in GSO.
"About 92% of the planned borrowing will come from mid-and long- term instruments in 2005," the ministry
says.
The ministry plans to place indicative bond issues with 3 to 15 year terms, and small volumes of short-term bonds
with terms of up to one year. The need for short-term instruments can be met through Central Bank of Russian
operations.
The market component of government domestic debt by January 1 2006 will top 600 billion rubles, of which over 90%
will consist of mid-and long-term instruments.
The government will not use its right to place up to $3 billion in Eurobonds in 2004 because higher oil prices will
enable the budget to exceed its revenue targets, materials submitted to the government together with 2005 budget
parameters say.
"Additional revenue together with the saving made on foreign debt servicing and repayment thanks to exchange
rate differences will be used to replace money raised from foreign-currency denominated bonds accounted for as sources
of foreign financing for the federal budget deficit."
The 2004 federal budget envisaged that $2.75 billion or 86.2 billion rubles would be raised from Eurobond placements
and provided the right to place up to $3 billion in Eurobonds with five to 30 year terms.
Talking about Eurobond placements, Deputy Prime Minister Alexander Zhukov said earlier: "We have the opportunity
to do this, but there is no need." Finance Ministry plans ruble bond issues for 2005
The Finance Ministry plans to place 18 billion to 20 billion rubles in GKO bonds, 158 billion to 160 billion in OFZ
bonds and 53 billion to 55 billion in government savings bonds (GSO) in 2005, materials submitted to the government with
2005 budget parameters say.
The GKO bonds will have terms of up to one year and yield of up to 6%. They should raise 16.4 billion rubles for the
budget in 2005.
Yield for mid-and long-term instruments is planned at 7% to 10%. The ministry expects to raise 73.3 billion rubles in
fixed coupon OFZ (OFZ-FK), 70.8 billion rubles in amortization bonds (OFZ-AD) and 50 billion rubles in GSO.
"About 92% of the planned borrowing will come from mid-and long- term instruments in 2005," the ministry
says.
The ministry plans to place indicative bond issues with 3 to 15 year terms, and small volumes of short-term bonds
with terms of up to one year. The need for short-term instruments can be met through Central Bank of Russian
operations.
Domestic borrowing this year is planned at 258.92 billion rubles
(not including non-market transfer of OFZ from the Central Bank
The market component of government domestic debt by January 1 2006 will top 600 billion rubles, of which over 90%
will consist of mid-and long-term instruments.
The ministry is reducing its appetite for domestic borrowing.
Domestic borrowing in 2005 is planned at 210.4 billion rubles and redemption of government securities till total 85.8
billion rubles, including 14.5 billion rubles on TKO, 44 billion rubles on OFZ-FK, 26.1 billion rubles on OFZ-AD, and
1.2 billion rubles on OFZ-PD. The net on the government securities market next year will be 124.6 billion rubles.
portfolio worth 70 billion rubles) and redemptions will total 118.27 billion rubles for net borrowing of 140.65
billion rubles. The issue of GKO is planned at 41 billion rubles, 220 billion rubles for OFZ, and 30 billion rubles for
savings bonds.
The Finance Ministry in 2005 will conduct a more conservative borrowing policy on the domestic securities market,
borrowing less, and will continue that policy in 2006 - 2007.
Borrowing on the government securities market in 2006 is planned at 220.4 billion rubles, redemptions will total 89.8
billion rubles, for net borrowing of 130.6 billion rubles.
Borrowing in 2007 will total 240.4 billion rubles, redemptions are planned at 95 billion rubles, and net borrowing is
planned at 145.4 billion rubles.
The Finance Ministry said despite positive changes on the domestic debt market in the past three years the market
remains limited. The ministry estimates the opportunity to borrow n the domestic market without increasing the cost of
borrowing at 200 billion - 220 billion rubles annually.
"All federal property not used to perform the functions and tasks
of the state will be offered for privatization in 2004-2006," the
"Any further increase in borrowing amid active sterilization of money supply by the Central Bank and Finance
Ministry would result in a sharp rise in the cost of domestic borrowing amid a general decline in interest rates in
Russia," the ministry said.
"Moreover, excessive government borrowing on the domestic market could hurt the development of the corporate
bond market and result in a drop in lending by Russian banks to the real sector, the ministry said. Russia plans to
complete privatization in 2005-2007
The Russian government plans to complete most of its privatization programs between 2005-2007 and collect 142 billion
rubles in proceeds in three years, according to Finance Ministry documents submitted to the Cabinet together with key
indicators of the 2005 federal budget.
The receipts of the federal budget from privatization in 2005 are
planned at 46 billion rubles, in 2006 at 47.8 billion, and in 2007 at
documents say.
As a result, in 2007, property barred from privatization as well as strategic companies operating in national
security interests and infrastructure facilities of federal importance in monopoly sectors will remain federal property,
the document says.
In 2005-2007, the government intends to sell stakes in 3-4 major corporations that will be chosen in the process of
making tentative annual plans for privatizing federal property.
48.2 billion rubles.
The sums include receipts from the sale of company stakes, state and federal lands and the rights to rent them.
[Interfax] |
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