Budget Deficit as a Condition for Budget Maneuvering
In mid-April 2012, the International Monetary Fund published its latest analytical report -- The Fiscal Monitor1 - with assessment of the conditions and mid-term prospects of budgetary and fiscal policy in different countries of the world.
It is expected that in 2012 the budget deficit in countries with developed economy will decrease on average by approximately 1 p.p. of the GDP, while in 2013, a bit more. For example, in the USA in the current year the budget deficit will shrink by 1.5 p.p. of the GDP, while in 2013, by another 1.8 p.p. of the GDP. As regards developing economies, China will complete the current year with a deficit of 1.3% of the GDP, while in 2013 it may secure a reduction of that index to 1%. As regards Russia, the IMF has revised substantially upward the forecast of the federal budget as compared to evaluations of January 2012, that is, from a deficit of 1.4% of the GDP to a surplus of 0.6% of the GDP in 2012 and from a deficit of 1.7 % of the GDP to 0.3% of the GDP in 2013.
Despite the fact that in accordance with the Law on the Federal Budget in 2012-2014 a budget deficit of 1.5% and 1.6% of the GDP is planned in 2012 and 2013, respectively, the Ministry of Finance of the Russian Federation and the Ministry of Economic Development of the Russian Federation do not exclude a reduction of the budget deficit in the current year with growth in global oil prices taken into account. However, the opinions of the above two ministries differ in evaluation of the amount of the balance of the federal budget in the mid-term prospect. According to Anton Siluanov2, Head of the Ministry of Finance, in 2012 the federal budget can be executed even with a surplus provided that the current foreign economic situation prevails, while Adrei Klepach3, Deputy Minister of Economic Development believes that Russia cannot attain a deficit-free budget until 2015 as the issue of the deficit is closely linked to economic growth rates and, as a consequence, the growing tax base which both conspicuously lag behind the dynamics of commodity prices.
It is evident that the budget deficit depends not only on the rates of economic development and foreign economic situation, but is also a result of both managerial decisions in the fiscal and budgetary policy and determination of the optimal combination between the expenditures on consumption and development and that between the volumes of budget revenues and the amount of borrowings. The more so, a rapid decrease in deficits may create risks, too, because higher taxes or volumes of borrowings with a decrease in investment expenditures of the budget have a negative impact on economic activities.
Due to the above, a priority of any government consists primarily in preservation of opportunities for a budget maneuver, for example, as regards reduction of taxes or increasing of expenditures when it is required by an adverse economic situation. A budget maneuver is closely linked to stability of the budget which in its turn depends on the level of the state debt, expenditures related to it, the amount of the deficit and growth rates of the economy. The higher the debt, interest rate and deficit and the lower the growth rates, the more modest opportunities of budget maneuvering.
According to the evaluation of the IMF, in 2012 the state debt of the Russian Federation is expected at 8.4% of the GDP, while in 2013, at 7.9% of the GDP. As regards that index, Russia is ahead of other BRIC states whose state debt is much higher: in 2012 that index is expected to be at the level of 22% of the GDP in China, 65.1% in Brazil and 67.6% in India.
Thus, judging by expectations regarding the amount of the deficit and the state debt Russia still preserves opportunities for a budget maneuver, and, consequently, in the mid-term prospect a priority should be given to determination of a reasonable compromise as regards both volumes and lines of budgetary expenditures.
Т.V. Tischenko, Senior Researcher of the Budget Policy Department
1 http://www.imf.org
2 http://www1.minfin.ru/ru/press/speech/index.php?id4=16047
3 http://ria.ru/economy/20120419/630035535.html
Despite the fact that in accordance with the Law on the Federal Budget in 2012-2014 a budget deficit of 1.5% and 1.6% of the GDP is planned in 2012 and 2013, respectively, the Ministry of Finance of the Russian Federation and the Ministry of Economic Development of the Russian Federation do not exclude a reduction of the budget deficit in the current year with growth in global oil prices taken into account. However, the opinions of the above two ministries differ in evaluation of the amount of the balance of the federal budget in the mid-term prospect. According to Anton Siluanov2, Head of the Ministry of Finance, in 2012 the federal budget can be executed even with a surplus provided that the current foreign economic situation prevails, while Adrei Klepach3, Deputy Minister of Economic Development believes that Russia cannot attain a deficit-free budget until 2015 as the issue of the deficit is closely linked to economic growth rates and, as a consequence, the growing tax base which both conspicuously lag behind the dynamics of commodity prices.
It is evident that the budget deficit depends not only on the rates of economic development and foreign economic situation, but is also a result of both managerial decisions in the fiscal and budgetary policy and determination of the optimal combination between the expenditures on consumption and development and that between the volumes of budget revenues and the amount of borrowings. The more so, a rapid decrease in deficits may create risks, too, because higher taxes or volumes of borrowings with a decrease in investment expenditures of the budget have a negative impact on economic activities.
Due to the above, a priority of any government consists primarily in preservation of opportunities for a budget maneuver, for example, as regards reduction of taxes or increasing of expenditures when it is required by an adverse economic situation. A budget maneuver is closely linked to stability of the budget which in its turn depends on the level of the state debt, expenditures related to it, the amount of the deficit and growth rates of the economy. The higher the debt, interest rate and deficit and the lower the growth rates, the more modest opportunities of budget maneuvering.
According to the evaluation of the IMF, in 2012 the state debt of the Russian Federation is expected at 8.4% of the GDP, while in 2013, at 7.9% of the GDP. As regards that index, Russia is ahead of other BRIC states whose state debt is much higher: in 2012 that index is expected to be at the level of 22% of the GDP in China, 65.1% in Brazil and 67.6% in India.
Thus, judging by expectations regarding the amount of the deficit and the state debt Russia still preserves opportunities for a budget maneuver, and, consequently, in the mid-term prospect a priority should be given to determination of a reasonable compromise as regards both volumes and lines of budgetary expenditures.
Т.V. Tischenko, Senior Researcher of the Budget Policy Department
1 http://www.imf.org
2 http://www1.minfin.ru/ru/press/speech/index.php?id4=16047
3 http://ria.ru/economy/20120419/630035535.html