Russia’s budget system can be described as ‘unstable balance’

Russia ran a federal budget deficit of 2.7% of GDP as of the end of two months of 2013, a decrease of 0.3 p.p. of GDP year on year. Oil and gas federal budget deficit was reduced by 2.1 p.p. of GDP to account for 13.0 % of GDP. 

Основное сокращение federal budget revenues over the first two months of 2013 произошло по доходам от foreign trade – на 1.1 p.p. of GDP (7.6% of GDP) year on year. At the same time federal budget revenues from mineral extraction tax reduced by 0.4 p.p. of GDP to 4.5% of GDP, from internal and external VAT by 0.3 p.p. of GDP (to 2.6% and 2.3% of GDP, respectively), and from external excise by 0.01 p.p. of GDP (to 0.07 % of GDP). In January-February 2013 budget revenues from internal excises grew up by 0.2 p.p. of GDP to 0.8% of GDP year on year. At the end of the period of January-February 2013, profit tax revenues remained at the level of the preceding year, 0.3% of GDP. 

A downward trend in dynamics of federal budget revenues, which occurred as early as the end of the third quarter of the preceding year and increased by the end of the first two months of 2013, causes concerns, because such a dynamics would hardy allow the budget rule to be met, i.e. maintain budget deficit at 0.8% of GDP. According to the estimates made by the Ministry of Finance of Russia, in 2013 federal budget revenues would run short of Rb 80bn to Rb 130bn, depending on volumes of imports, average weighted import tax rate and foreign exchange rate. 

Extra risks of maintaining high deficit are caused by the fact that federal budget parameters for 2013 were developed according to strict requirements to budget expenditures and refusal to assume new expenditure commitments which are not backed up by extra revenues. However, the government assumes new expenditure commitments. For example, about Rb 40bn must be allocated as additional financing pursuant to the RF Presidential Decree on orphans. In addition, there are more projects which require extra costs, yet no sources of additional financing have been identified. 

For example, by the end of the first two months of 2013 federal budget expenditures on ‘Federal Issues’ and ‘National Defense’ increased by 0.4 p.p. of GDP each, on ‘National Economy’ by 0.2 p.p., on ‘Physical Education and Sports’ by 0.01 p.p. of GDP year on year. In the meantime, federal budget expenditures reduced on most of the budget items in January-February, namely ‘National Security and Law Enforcement’ by 0.1 p.p. of GDP, ‘Housing and Communal Services’ by 0.01 p.p., ‘Education’ by 0.2 p.p., ‘Culture, Cinematography’ by 0.1 p.p., ‘Public Health’ by 0.9 p.p., ‘Social Policy’ by 2.4 p.p.; ‘Intergovernmental fiscal transfers’ by 0.1 p.p. of GDP year on year. In January-February 2013, federal budget expenditures on other budget items remained at the level of January-February 2012 as percentage of GDP.

In general, given the crisis in Cyprus and potential risks of slowdown in the global and Russia’s economic growth, the current situation with the budget system can be described as ‘unstable balance’, when not external factors but timely and coordinated actions between the Russian Government, the Ministry of Finance, and the Central Bank of Russia aimed at mitigating adverse effects of these factors are likely to be the essential factor of the national budget system balance. 

Tischenko T.V. – Ph.D. in Economics, senior researcher, Budget Policy Department