The draft federal budget for 2019 and the 2020-2021 planned period submitted by the Russian Government to the Parliament suggests utilization of funds received from the privatization of federal property as a separate source of the federal budget deficit funding.
It is noteworthy that the draft of the relevant federal law like a similar document of 2017 does not include the information on the specific value of the revenues from the privatization either in the main part or supplements. The revenues from the privatization of federal property are specified along with state borrowings as a separate source of the federal budget deficit funding only in the explanatory note to the document.
Federal budget revenues from the privatization of federal property are estimated at Rb 13.0bn, Rb 10.9bn in 2019 and 2020, respectively; as regards 2021 there are no estimates available. The role of these revenues in financing the federal budget deficit will be the minimum: in 2019–2020 the expected value of the privatization-related revenues will amount to less than 1% of the funds expected to be attracted by means of state borrowings. As compared to the forecast of the revenues from the sale of federal property -- without the cost of equities of large companies accounted for -- based on the materials to the draft federal budget for 2018 and the 2019-2020 planned period submitted by the Russian government last autumn (Rb 12.2 bn and Rb 11.4bn in 2019 and 2020, respectively), the value specified in respect of 2019 happens to be somewhat higher, while that, in respect of 2020 is somewhat lower.
The feasibility of such a forecast of revenues from the privatization can be evaluated by way of comparison with the benchmarks of the 2017–2019 privatization program approved by Resolution No, 227-r of 8 February 2017 of the Government of the Russian Federation and intermediate results of implementation thereof this year.
According to the data of the flash report on implementation of the federal budget as of 1 October 2018 (by internal deficit funding sources) presented on the Web-site of the Federal Treasury, funds received from the sale of equities and other forms of participation in the capital being in the federal ownership amounted to about Rb 7.8bn, that is, more than the annual forecasted value of the revenues, apart from large deals, specified in the 2017–2019 privatization program (Rb 5.6bn), however, it does not permit to say for sure that budget targets are actually feasible.
As regards the privatization of 7 large companies in compliance with individual decisions made by the President of the Russian Federation and the Government of the Russian Federation in determining concrete deadlines and methods with the market situation and recommendations of leading investment consultants specified in the existing privatization program taken into account, in absence of decisions by the Government of the Russian Federation on alienation of those companies’ interest in 2018–2020 no revenues from the sale of interests in 2019 and the 2020-2021 planned period are expected as per the information provided by the Rosimuschestvo.
In 2019, federal budget revenues from utilization of the property being in state ownership are expected in the amount of Rb 791.0bn, an increase of Rb 286.25bn (or 56.7%) compared to the estimate in respect of 2018. Throughout the entire 2019–2021 period, the main source of such incomes (3/4 and more) are dividends.
In 2019, federal budget revenues are forecasted in terms of the profit in proportion to the shares in the charter (pooled) capital of business partnerships and companies or dividends on equities owned by the Russian Federation in the amount of about Rb 588.3bn, that is, twice as much the estimate in respect of 2018 mainly owing to the transfer to the federal budget of at least 50% of companies’ net profit in proportion to the ownership share of the Russian Federation in 2019, while in subsequent two years a change in the size of the net profit is a factor that has an effect on the forecast of such revenues. As a result, the value of revenues from dividends is to increase only by 6%-8% in 2020–2021. A likely growth in dividend payments in 2019 may raise some questions because the dynamics of the dividend-related revenues were of a controversial nature in the past few years: growth of 18% in 2015 (to Rb 259.8bn), a decrease of 13% in 2016 (to Rb 226.6bn without taking into account the funds received from the sale of the Rosneft’s equities accounted for as dividends from the AO ROSNEFTEGAZ) and another growth of 10.9% in 2017 (to Rb 251.3bn).
An individual item of budget revenues is a transfer of incomes from participation of the Central Bank of Russia in the capital of the Sberbank of Russia, a public joint-stock company; such revenues are attributed to other non-tax budget revenues. In 2019, growth in revenues from this source is expected to be somewhat lower as compared to dividends on federal parcels of shares, but yet quite a considerable one (over 1.5 times over). The sum of the dividends expected to be received by the Central Bank of Russia from the Sberbank is to amount to Rb 209.5bn against Rb 135.5bn as per the estimate of 2018. Such growth is justified by nearly 70% by the decision to allocate minimum 50% of the net profit on payment of dividends, while in subsequent two years only a change in the size of the net profit of the Sberbank is a factor that has an effect on the forecast of such revenues. As a result, in 2020-2021 the value of revenues is to increase by the mere 4%–5%. If the importance of this source of revenues is evaluated, it can be stated that in 2019-2021 the unit weight of the dividends expected to be received by the Central Bank of Russia from the Sberbank is to amount to over 1/4 of the volume of all the dividend-related revenues.
Other types of federal budget revenues from utilization of state property (lease rents on land and property and the transferred profit of unitary enterprises) are of an auxiliary nature.
The Federal Property Management State Program approved by Resolution No.327 of 15 April 2014 of the Government of the Russian Federation was modified again (the third version) in spring 2018. The program was extended till 2020 (included) with the earlier trend of reduction of expenditures on implementation thereof changed as compared to the initial version. After the reduction of expenditures on implementation of the state program in the previous version as compared to the initial one, expenditure growth of 2%-2.5% in 2018-2019 is specified in the new version.
However, the document deals with only planned (not actual) volumes of budget funding, a good illustration of the draft federal budget for 2019-2021. It provides for a reduction of 30% of budget allocations on implementation of the state program in 2019-2020 as compared to the volume specified in the program. However, in 2021 budget allocations are to increase by 2% as compared to the level of 2020, but the program’s official termination date is 31 December 2020.
Reduction of the volumes of funding of the state program can be explained by a decrease in budget allocations within the frameworks of the Management of the State Material Reserve
subprogram, main recipient of such allocations, due to a decision made to reveal a portion of expenditures in the “closed” part of the state program. As a result, the share of another subprogram which makes up this state program – Upgrading of Efficiency of State Property and Privatization Management – will exceed 1/4 in the overall volume of funding. It is to be noted that the expected volumes of funding will increase somewhat as compared to those specified in the effective version of the state program with annual growth of 1.5% in absolute terms in 2020-2021.
Georgy Malginov , PhD, Economics, Head of the Ownership and Corporate Governance Department