17 June 2004 08:48
RUSSIAN GOVT PASSES DRAFT 2005 BUDGET IN PRINCIPLE
MOSCOW. June 17 (Interfax) - The Russian government has passed the draft federal budget for 2005 in principle and the
socio-economic forecast for the year.
Finance Minister Alexei Kudrin said the budget is based on structural changes in the economy and continued economic
growth and includes a substantial increase in spending. A Serious Step
The 2005 budget works on structural changes in the economy and maintaining economic growth. he said.
"We won't be able to take such a serious step as in 2005 again. neither to ease the tax burden nor to
increase spending." Kudrin said.
He said all budget figures were coordinated. "If we change the figures this would be a change for the
worse." he said.
Kudrin said this did not pertain to economic growth figures which are usually analyzed in July. These figures will be
revised upward if possible following that analysis. he said.
These obligations are about 9% - 10% of the budget for next year.
Kudrin said 90% of this would be used to cover prior obligations
The amount of new federal budget obligations will be increased by 258 billion rubles next year.
"This is a guideline that did not need confirmation at today's session." he said. The money will be
used to index the material outlays of ministries and government departments related to inflation. he said.
"We will keep our promise to increase but justify spending." Kudrin said.
Prime Minister Mikhail Fradkov said before the draft budget was
approved that it is important to preserve the figures in the draft
not previously financed and 10% is new obligations.
"2005 is a year of a big increase in federal budget spending." Kudrin said. Taxes are being reduced. budget
subsidies for the Pension Fund deficit are being increased. and other items related to the switch to cash for various
tax breaks are being increased.
The draft budget will be submitted to the government on August 12 and the Cabinet of Ministers is expected to
consider it on August 19. he said.
Federal budget revenue in 2005 is planned at 3.103 trillion rubles
or 17.2% of GDP and spending is planned at 2.916 trillion rubles. or
16.1% of GDP. The federal budget surplus will total 187.01 billion
budget.
"It is important that the forecast for socio-economic development that were balanced our form the foundation of
the budget and are preserved." he said.
The budget will be revised over the next six weeks. Fradkov said the government would discuss the budget with members
of the lower house and representatives of the regions. Budget Figures
rubles or 1% of GDP.
Spending on defense and law enforcement will make up 31% of budget spending. transfers between budgets will make up
about 30%. spending under "general state spending" will make up 16.8%. and spending on the national economy
will make up 6.9%. Education. healthcare. recreation. the arts and social policy will make up 11.5% of spending in 2005.
and capital investment will make up 2.7%.
The budget was prepared based on the differentiation of revenue sources and spending among the federal and regional
governments next year. and elimination of non-financed mandates. the switch to cash for benefits. and tax changes.
namely the drop in the base rate for the single social tax from 35.6% to 26%. which will result in a sharp drop in
revenue from the Pension Fund.
INDICATOR 2004 2004 2005 (30.2 2006 (30.8 2007 (31.0
budget forecast Rbs /$, Rbs /$, Rbs /$,
(31.3 (29.1 Rbs GDP 18.08 GDP 20.62 GDP 23.45
Rbs/$, GDP /$, GDP Trillion Trillion Trillion
15.3 15.69 Rbs Rbs) Rbs)
Trillion Trillion
Rbs) Rbs)
1.REVENUE of 2742.85 3029.12 3103.27 3304.18 3598.04
which 17.9% GDP 19.3% GDP 17.2% GDP 16.0% GDP 15.3% GDP
1.1.Taxes 2071.38 2364.89 1854.63 2063.59 2301.95
13.5% GDP 15.1% GDP 10.3% GDP 10% GDP 9.8% GDP
1.2.Non-tax 233.26 209.17 988.41 942.79 952.09
1.5% GDP 1.3% GDP 5.5% GDP 4.6% GDP 4.1% GDP
1.3.Social tax 438.21 455.05 260.22 297.79 344.0 1.5%
2.9% GDP 2.9% GDP 1.4% GDP 1.4% GDP GDP
2. SPENDING, of 2659.45 2650.77 2916.25 3275.77 3523.27
which 17.4% GDP 16.9% GDP 16.1% GDP 15.9% GDP 15.0% GDP
2.2.Non- 2371.88 2378.87 2660.42 3018.94 3269.79
interest 15.5% GDP 15.2% GDP 14.7% GDP 14.6% GDP 13.9% GDP
2.3.Interest 287.57 271.9 1.7% 255.83 256.84 253.48
1.9% GDP GDP 1.4% GDP 1.2% GDP 1.1% GDP
-domestic 64.38 64.38 68.68 80.05 85.37
-foreign 223.19 207.52 187.15 176.79 168.11
3.SURPLUS 83.4 0.5% 378.35 187.01 28.4 0.1% 74.77
GDP 2.4% GDP 1.0% GDP GDP 0.3% GDP
4. 189.4 417.06 512.21 500.0 500.0
The 2005 budget uses an optimistic forecast for oil prices of $26 per barrel and an average annual exchange rate of
30.2 rubles/$1. GDP is forecast at 18.08 trillion rubles and inflation is pegged at 8.5%.
The government also drew up a financial plan for 2006 and 2007. The exchange rate in 2006 is planned at 30.8
rubles/$1 and GDP is forecast at 20.62 trillion rubles. Federal budget revenue in 2006 is planned at 3.304 trillion
rubles. or 16% of GDP. and spending at 3.275 trillion rubles. or 15.9% of GDP. The surplus would be 28.4 billion rubles
or 0.1% of GDP.
The exchange rate for 2007 is planned at 31 rubles/$1 and GDP at 23.45 trillion rubles. Federal budget revenue will
reach 3.598 trillion rubles or 15.3% of GDP. spending will be 3.523 trillion rubles or 15% of GDP. and the surplus will
be 74.77 billion rubles or 0.3% of GDP. Draft financial plan for 2005 - 2007 (in Bln rubles and as % of GDP)
STABILIZATION FUND, at end of period, of which: 4.1.Starting 106.0 106.0 417.06 512.21 500.0 balance 4.2. Revenue
83.4 311.06 267.67 226.34 184.85 for year 4.3. Spending - - 80.95 197.94 110.08 on Pension Fund deficit 4.4. To cover -
- 91.57 40.62 74.77 imbalance on sources Finance Ministry Opposes Increased Foreign Borrowing
Kudrin opposed an increase in foreign borrowing.
"So in 2005 under the current policy Russia will use 8.8% of
spending to service its debt, which is no more than Germany or the
"I consider foreign borrowing unwarranted at a time when high world oil prices are generating a fairly serious
increase in revenue," he said at a government session today.
He said domestic borrowing should be undertaken with changes on the domestic market in mind.
Spending to service the foreign debt this year will total 261 billion rubles and 255 billion rubles next year, he
said.
Kudrin said with world market oil prices high the Finance Ministry
sees no need to borrow on foreign markets. "It would be illogical to
United States use," Kudrin said.
Russia's debt is considerably smaller than the debt developed countries maintain. The United States, France, and
Germany maintain a debt of 57% - 59% of GDP, while Russia's is 26%, through in terms of the amount spent to service
the debt Russia in on a level with the United States and Germany.
The Finance Ministry said Russia should not issue any Eurobonds this year and allow the issue of $2.5 billion in
Eurobonds in 2005.
accumulate a stabilization fund and place it at 3% annually on world markets and then borrow at 7% - 8% annually. I
suggest not borrowing," he said.
The Pension Fund deficit next year will total 190 billion rubles
due to the drop in the single social tax, 223 billion rubles in 2006,
Russia planned to raise $2.7 billion through Eurobonds this year. But additional revenue has eliminated the need for
this money.
Although some of the spending to cover the Pension Fund deficit and
pay the foreign debt will be financed out of the stabilization fund
Kudrin said $2.5 billion will be needed to balance the 2005 budget. Domestic borrowing next year will net 135 billion
rubles and foreign borrowing will carry a negative balance of 226 billion rubles, as there will be a net payment of
debt. "We will maintain borrowing of $2.5 billion," he said, adding that this would not fully cover the need
for money to pay the foreign debt next year. The stabilization fund, which is expected to exceed the base level of 500
billion rubles, will be used to pay the foreign debt next year. Finance Ministry To Start Using Stabilization Fund in
2005
The Finance Ministry plans to begin using money from the stabilization fund next year, which is formed from earnings
on high oil prices. Money in the fund in excess of the 500 billion rubles base level will be used to cover the Pension
Fund deficit and pay the foreign debt.
The stabilization fund is formed from earnings on oil export and
production when oil prices top $20 per barrel. So even if the price
and 297 billion rubles in 2007. The government will use 80.95 billion rubles from the stabilization fund to cover the
Pension Fund deficit next year, 197.94 billion rubles in 2006, and 110.08 billion rubles in 2007.
"In any event we would exceed 500 billion rubles, because the
initial balance on January 1, 2005 is expected to reach 417 billion
which is not yet formed, the Finance Ministry believes the 2005 budget has a sufficient cushion.
If the situation takes a turn for the worse and oil prices drop the
stabilization fund could be used as a reserve, in addition to 100
A Finance Ministry source told reporters that this budget structure is solid even if oil prices drop to the
pessimistic forecast of $22.5 per barrel.
The use of money from the stabilization fund next year to help
cover the Pension Fund deficit will make it more difficult for the
drops to $22.5 per barrel the stabilization fund will continue to grow, granted at a slower rate. In this case it
would grow 80 billion - 100 billion rubles a year.
The drop in the social tax will create a deficit of 190 billion
rubles for the Pension Fund next year. The Pension Fund will use 100
rubles," he said.
billion rubles that will be allocated out of the balance from 2003. Use of Stabilization Fund Complicates Battle With
Inflation
When the economic forecast and budget are revised in July this must
be taken into account. "We have to find a way to stay on track. I think
Central Bank of Russia to fight inflation, Kudrin said.
billion rubles of its own reserves to cover the deficit and 90 billion rubles will be provided by the stabilization
fund, so the additional injection into the economy will total 190 billion rubles. This money was previously either held
on accounts or sterilized in the stabilization fund.
Kudrin said that injecting this money into the economy creates added inflationary pressure. "These measures will
weaken the financial policy and make it more difficult for the Central Bank to hold inflation in check," he
said.
the Economic Development Ministry has not considered this," he said.
Central Bank Chairman Sergei Ignatiev asked Kudrin about the impact of the additional money to be spent out of the
stabilization fund. He said the expanded government in 2003 had sterilized 215 billion rubles, but this figure will be
several times less or even zero in 2005.
Ignatiev said the government must carefully analyze the possibility of using money from the stabilization fund to
finance spending.
"The stabilization plays a very active role in stabilizing money supply and preventing inflation," he
said.
The stabilization fund has helped absorb surplus money supply from additional oil revenue and sterilize it, he
said.
"The stabilization fund will play a much smaller role next year because only some of the money will be
sterilized and it is unclear what will happen in 2006," Ignatiev said.
He said an analysis had shown the key indicators and socio-economic forecast for 2005 were coordinated. This pertains
to inflation, the real rate for the ruble, the budget surplus, the Pension Fund deficit, and sources for its
financing.
"If we start changing some figures we'll have to change the whole system," he said. Concerns and
Dangers
Many ministers expressed concern over certain budget figures, but in general the 2005 budget appears balanced.
Deputy Prime Minister Alexander Zhukov was concerned by an increase in non-interest expenses next year. "This
will occur while we are sharply lowering the tax burden in 2005. Under these conditions we are allowing an increase in
non-interest related expenses, and it is not easy to combine these problems," he said.
Zhukov called on the government to maintain the key parameters in the economic forecast and federal budget for 2005
and to 2007. "They seem fairly balanced," he said, adding that the economic forecast and budget figures had
reserves from the standpoint of the effectiveness of the use of budget money. This must be taken into consideration by
the Economic Development Ministry and Finance Ministry in further work on the forecast and budget, he said.
Economic Development Minister German Gref said the government might not be able to finance key projects in the
economy next year.
Gref said the economy would exhaust the effect of a low ruble rate
by 2007 - 2008 that followed the 1998 crisis and so new sources of
"Based on the figures we have right now we realize that we can't finance key projects that would eventually
result in a drop in spending and solving serious economic problems," Gref said.
The ministries included an additional 150 billion rubles in spending in the original spending plan, he said.
"It will be extremely difficult to coordinate the demands we have with the budget figures that were presented
today," he said.
If no progress is made to increase the ability to compete growth
could slow to 3% - 4% a year, he said.
growth must be formed now.
"By 2007 - 2008 the real effective exchange rate will surpass the pre-crisis level and the Russian economy will
face a moment of truth when we will see how well it has prepared, become more competitive, in order to compete out of
costs with imported goods," he said.
Gref said under the current economic structure the contribution by the expanded government to accelerate economic
growth is critical. "We are essentially at the threshold of exhausting our competitiveness from a weakened national
currency and various infrastructure problems. We must generate new sources of growth," he said.
Economy ministry corrects 2005 GDP growth forecast
The Economic Development Ministry has corrected its GDP growth forecast for 2005 to 5.9% from 6.2%, Economic
Development and Trade Minister German Gref told the press on Thursday.
The 6.2% growth forecast was envisaged in a mid-term development forecast, he said. The figure has now been corrected
in accordance with an adjusted comparison base.
Weighted average oil prices are expected at $29 per barrel in 2004 and forecast at $26 per barrel in 2005.
Russian Deputy Prime Minister Alexander Zhukov had previously said the adjustment of the economic growth forecast for
2005 is connected to the fact that it is not clear for now what federal target programs will be financed and how much
funding will be allocated for them.
Commenting on Zhukov's proposal, Gref said the GDP forecast for 2005 was scaled back due to the higher
comparative base this year. "In 2005, everything will depend on the dynamics of the oil prices. We cannot avoid
this global fact yet," he said.
At the same time, the Economic Development and Trade Ministry is not expecting much input from federal target
programs in 2005. If the government reconsiders the federal target programs that are expected to be funded next year, it
will give economic growth in an amount of 0.1 percent points at a maximum, Gref said.
[Interfax] |
RUSSIA IN FACTS
