Updates to the federal budget in June 2014

The values of the planning period and total federal budget expenditures in 2014 (Rb 13 trillion 960bn 133.3m) have once again been left intact in the recently updated federal budget. Nonetheless, due to a downgrade from Rb 73 trillion 315bn to Rb 71 trillion 493bn in the forecasted GDP volume, which corresponds to a decline in annual economic growth amid a constant inflation projection (meaning that in the Federal Law the term “inflation” is referred to as the GDP deflator index, and using the Rosstat’s second evaluation of GDP for the preceding year as the base of reference) from 4.6% to 2.0%, the values of federal budget expenditures have increased relative to GDP. Using, instead of optimistic budget 5%, a GDP deflator index of 6.6% projected in May by the Ministry of Economic Development of Russia, allows the updated official planning and budget economic growth to be evaluated at 0.47% by the end of the current year.

Classified allocations of the federal budget have been reduced by Rb 34.4bn, most probably because of the well-known problems of the execution of the state defense order (SDO), according to Chief Military Prosecutor S. Fridinsky, and SDO was “actually” executed 80% in the previous year.
 

The non-classified section of expenditures of the Ministry of Defense has seen an increase of Rb 46.8bn, which implies that SDO has been cut off by about the same amount in the Ministry. The federal budget expenditures in the National Defense section have increased Rb 21.6bn in the non-classified section for the same reason. Additionally, the Government intended to cut off Rb 17.6bn (up to Rb 2 trillion 470.6bn) of total expenditures for the same budget section and this was most probably done. Nonetheless, the foregoing change in the GDP projection has increased the military burden upon the Russian economy, from 3.4 to 3.5% of GDP.

On the contrary, the Government tended to raise overall expenditures by Rb 14.1bn for the National Security and Law Enforcement section (up to Rb 2 trillion 67.6bn), which also increased the military burden upon the economy, from 2.8% to 2.9% of GDP. However, no one can be absolutely positive that the foregoing was done, because the Russia’s federal budget lacks transparency, however the non-classified budget expenditures have been raised by Rb 11.6bn for this section under the new Federal Law.

While the 2015 federal budget is being drafted, it is very important to rely on the gained experience which shows that the Russian Military Industrial Complex (MIC) has never executed SDO more than 80% since the adoption of the existing national armament program. Furthermore, a key reserve for saving the federal budget resources has long been well known – stop wasting money and cut Rb 368.0bn from the SDO allocations for 2014–2016, as the Government suggested to President Putin in June 2014. However, in fairness it must be admitted that a waste of 20% equals to an amount which is a bit less than twice as much.

Vasily Zatsepin, PhD in Military Science, Head of Economics of the Military-Industrial Sector Department