ALEKSEY VEDEV: A TOTALLY CONFLICT SITUATION EMERGES AND DOES NOT CHANGE
On February 26, Aleksey Vedev, Doctor of Economics, Head of Financial Studies Department of Gaidar Institute, shared his ideas on economic forecast at the workshop “Management of the economy” held by RAS at the Central House of Scientists.
In his presentation, expert focused on forecasts provided by three institutions-- the Ministry of Finance, the Ministry of Economic Development and the Central Bank, having underlined that a totally conflict situation is on the way, which according to his view, does not change.
Aleksey Vedev noted: “The nominal GDP is more important for the Ministry of Finance and they do not care about other issues”. “Essentially, the forecast provided by the Ministry of Finance is a conservative scenario: the worse the better. The worse situation is the more secure the Ministry of Finance finds itself, and the state programs are more prone for implementation. Last but not the least, the Ministry of Finance constantly insists on it”. Aleksey Vedev believes that in this context independence of the Ministry of Economic Development is very important which is very much interested in the rates of economic growth. “It is our optimists whom occasionally put in their place.”
The third institution is the Central Bank. Expert of the Gaidar Institute stated: “The Central Bank took a strange position right away meaning that the 204th Presidential Executive Order will not be implemented in any case according to main trends of fiscal policy submitted in early September. Thus, the Central Bank explained its position that it does not want to play fast and loose. It is independent.”
According to Aleksey Vedev, “as the state share is large and forecasting is rather pricy, most of the international institutions and independent centers focus specifically on these three assessments in their forecasts, that is, the Ministry of Finance, the Central Bank and the Ministry of Economic Development”.
At present, they moved back to three forecast scenarios: “conservative, especially for the Ministry of Finance, target-oriented, which emerged as a result of the Presidential instruction as of end of 2015 and seemed like an alternative solution of the problem, meaning what should be done in order to achieve goals, and lastly, basic one which is the safest bet".
What should the real forecast look like? “As I have already said, the Ministry of Finance insists on a bad one. A while back, when I was working in the Ministry of Economic Development, I spoke every quarter with the vice-governors responsible for economics. On the contrary, they insisted that the forecast should be optimistic. They always used to tell me: “Be optimistic, even if we achieve only half, it will be fine. Otherwise, you drive everyone into a rather pessimistic mood which brings harm to business climate”.
According to expert, he pointed out that the forecast should be adequate. “All the same, state-owned companies that dominate in planning their activities should focus on state programs and state forecast. I agree that state forecast is subordinate, especially when the Ministry of Finance strengthens its influence while impact of the Ministry of Economic Development is de-emphasizing. When budget is primary compared to rates of growth or business climate, the forecast becomes subordinate”.
As explained by Aleksey Vedev, it is the balance of the forecast that is critical. In recent years, "we have to note a decrease in balance and consistency."
“It is surprising that, forecasts generally lack financial sector as if it does not exist in principle. From time to time, the Central Bank makes a forecast with regard to monetary program. At the same time, the banking sector with its trillion profit as well as financial markets have no place in the forecasts.”
“We observe a rather strange forecast of indicators,” Aleksey Vedev proceeded. “The quality of Rosstat, for sure, leaves much to be desired. I assume that Form No. 101, i.e. reporting on financial banking accounts, is very important. It is reasonably accurate: data are never reviewed retroactively, have a face value and do not change. This is very important In terms of balance and control points required for the forecast.”
Expert focused on another issue with regret, that is, total lack of description of systemic risks. “It is very strange to watch that China’s “hard landing” turns out to be the main systemic risk in the development of our economy. If that were the case, to be honest, I would be happy,” concluded Aleksey Vedev.
Aleksey Vedev noted: “The nominal GDP is more important for the Ministry of Finance and they do not care about other issues”. “Essentially, the forecast provided by the Ministry of Finance is a conservative scenario: the worse the better. The worse situation is the more secure the Ministry of Finance finds itself, and the state programs are more prone for implementation. Last but not the least, the Ministry of Finance constantly insists on it”. Aleksey Vedev believes that in this context independence of the Ministry of Economic Development is very important which is very much interested in the rates of economic growth. “It is our optimists whom occasionally put in their place.”
The third institution is the Central Bank. Expert of the Gaidar Institute stated: “The Central Bank took a strange position right away meaning that the 204th Presidential Executive Order will not be implemented in any case according to main trends of fiscal policy submitted in early September. Thus, the Central Bank explained its position that it does not want to play fast and loose. It is independent.”
According to Aleksey Vedev, “as the state share is large and forecasting is rather pricy, most of the international institutions and independent centers focus specifically on these three assessments in their forecasts, that is, the Ministry of Finance, the Central Bank and the Ministry of Economic Development”.
At present, they moved back to three forecast scenarios: “conservative, especially for the Ministry of Finance, target-oriented, which emerged as a result of the Presidential instruction as of end of 2015 and seemed like an alternative solution of the problem, meaning what should be done in order to achieve goals, and lastly, basic one which is the safest bet".
What should the real forecast look like? “As I have already said, the Ministry of Finance insists on a bad one. A while back, when I was working in the Ministry of Economic Development, I spoke every quarter with the vice-governors responsible for economics. On the contrary, they insisted that the forecast should be optimistic. They always used to tell me: “Be optimistic, even if we achieve only half, it will be fine. Otherwise, you drive everyone into a rather pessimistic mood which brings harm to business climate”.
According to expert, he pointed out that the forecast should be adequate. “All the same, state-owned companies that dominate in planning their activities should focus on state programs and state forecast. I agree that state forecast is subordinate, especially when the Ministry of Finance strengthens its influence while impact of the Ministry of Economic Development is de-emphasizing. When budget is primary compared to rates of growth or business climate, the forecast becomes subordinate”.
As explained by Aleksey Vedev, it is the balance of the forecast that is critical. In recent years, "we have to note a decrease in balance and consistency."
“It is surprising that, forecasts generally lack financial sector as if it does not exist in principle. From time to time, the Central Bank makes a forecast with regard to monetary program. At the same time, the banking sector with its trillion profit as well as financial markets have no place in the forecasts.”
“We observe a rather strange forecast of indicators,” Aleksey Vedev proceeded. “The quality of Rosstat, for sure, leaves much to be desired. I assume that Form No. 101, i.e. reporting on financial banking accounts, is very important. It is reasonably accurate: data are never reviewed retroactively, have a face value and do not change. This is very important In terms of balance and control points required for the forecast.”
Expert focused on another issue with regret, that is, total lack of description of systemic risks. “It is very strange to watch that China’s “hard landing” turns out to be the main systemic risk in the development of our economy. If that were the case, to be honest, I would be happy,” concluded Aleksey Vedev.
Friday, 28.02.2020