“As for improving budget stability thorough expenditure cuts, on the one hand, it is certainly necessary to refuse from not working and costly programs, stop subsiding unjustified expenditures of the state-run companies and natural monopolies,” the minister writes in an article published by the Vedomosti newspaper. “In the new economic conditions the state should pull in its belt. But at the same time the optimisation of expenditures requires a responsible and careful approach.”
Ulyukayev says that the “head-on” budget expenditure cuts will not give the desired effect, while “raising the budget expenditure ceiling may balance its structure and channel the resource to the so-called productive items of expenditure.”
“Running a budget with higher deficit (for example, up to 2% of GDP), it is important to optimally plan the sources of its financing,” he says. “The funds’ attraction only from the internal market may cause the ‘displacement effect’ - resources for bank crediting and investment into corporate bonds dwindle.” However, the issue of the federal loan bonds increases the volume of bond securities, which allows the Bank of Russia to expand refinancing. “Certainly, the Bank of Russia can intensify operations on the open market, increasing its balance by the acquisition of sovereign debt risk from the commercial banks’ balance,” the minister says. “In addition, the attraction of long-term debt capital in the East is necessary - this market is open for us.”
Ulyukayev says that in the current conditions additional expenditures, aimed at debottlenecking in the infrastructure and production spheres, will not have the inflationary effect. “On the contrary, to keep food prices down it is necessary in the short term to considerably increase the supply of agricultural produce, which will be an extremely difficult task without state support,” says the Russian economic development minister.