The RF Ministry of Finance to Raise Its 2014 Budget Deficit Projection

The RF Ministry of Finance is going to revise upwards its budget deficit projection for 2014 due to the expected loss of revenue in the amount of Rb 650 bn. In April, the RF Ministry of Economic Development downgraded its previous economic growth rate projection for Russia's economy in 2014 fr om 4.3% to 3.7%.

In our opinion, the RF Ministry of Finance's intention to upwardly adjust its projection of federal budget deficit in response to the revision, by the RF Ministry of Economic Development, of its own projections of economic growth in 2014 appears to be fully justified. The slowdown in the economic activity that has resulted in a slump (in this connection it should be reminded that, this autumn, the RF Ministry of Economic Development is already expecting the Russian economy to enter a period of recession) will inevitably result in a decline in the amount of revenue (and primarily tax-generated revenues) in Russia's budgetary system. This situation can be explicitly illustrated by the graph presented below, wh ere a high rate of economic growth corresponds to a huge budget surplus, while the periods of slump coincide with budget deficits.

Fig. 1. The GDP Growth Rate (as a Percentage of the Previous Period) and the General Government Budget Balance Sheet (as a Percentage of GDP), 1999-2012
Source: Rosstat and Roskazna [RF Federal Treasury].

Besides, the results achieved over Q1 2013 so far have given rise to little optimism, in spite of the increased crops forecasts. In fact, Russia has already entered the technical recession phase, which can be recognized not only by some purely formal signs but also by the recent real developments, because the declining output in the core sectors of the national economy has been caused by other factors in addition to seasonal ones (the declining exports of Russian hydrocarbons, the ongoing shrinkage of the processing industries in response to lower investments, the dwindling demand for domestic commodities caused by the current rise in imports, etc.).

Thus, we have found yet another, stronger substantiation for the already existing concerns that, in absence of any decisive measures aimed at reforming Russia's economy in order to push it onto a new trajectory of long-term growth, this country may be threatened with the prospects of an economic downfall that will be more disastrous than anything that we can imagine in the present situation.

M.V. Kazakova - Candidate of Economic Sciences, Head of the Economic Development Department