Experts of the Gaidar Institute and the RANEPA Prepared their Findings on the Draft of the 2017-2019 Federal Budget
Ther Gaidar Institute and the RANEPA have prepared their findings on the federal draft law on the Federal Budget for 2017 and the 2018-2019 Planning Period.
The RF Ministry of Finance and the RF Government return to a three-year planning: the draft law includes parameters not only for 2017, but also for the 2018-2019 planning period. The 2017–2019 period can be called a transition period in terms of the budget consolidation. Such a period is necessary for introducing new budget rules from 2020. Reduction of the budget deficit is feasible mainly by means of state expenditure cuts not only in shares of GDP, but also in nominal terms. It is to be noted that the total volume of revenues falls due to reduction of the oil and gas component amid prevailing low prices on oil.
Plans to cut expenditures in nominal terms to reduce the budget deficit set rather rigid frameworks for the fiscal policy in 2017–2019. In terms of feasibility of the revenue forecast, it is noteworthy that the forecast of oil and gas revenues is overstated (primarily, due to “domestic “ VAT), while the forecast of oil and gas revenues is fairly realistic if one takes into account a conservative oil forecast which is below the forecasts of numerous leading international institutions. However, in the latter case one should remember that it is impossible to make reliable predictions as regards oil prices. So, there are certain risks related to the revenue side of the budget. It is to be noted that one does not utilize all the options available to collect taxes from oil companies due to deviation of the “tax maneuver” parameters from the original ones.
As regards the expenditure side, no purposeful and consistent upgrading of efficiency of federal budget expenditures in terms of the ratio of “productive” and “non-productive” expenditures is planned; the above factor together with a prevailing trend of reduction of state investments in the past few years may prevent the Russian economy from achieving sustainable development. Also, it is noteworthy that for the Ministry of Finance and the RF Government it will be rather difficult to carry out a tough policy aimed at consistent reduction of the volume of expenditures not only in shares of GDP, but also in nominal terms.
Taking into account factors of risks both in the revenue and expenditure sides of the budget, actual deficit volumes may happen to be higher than the planned values and that situation may result either in a complete depletion of both the Reserve Fund and the National Welfare Fund or higher volume of domestic borrowings that may become problematic and lead to growth in interest rates and squeeze private investments.