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Russian government approves challenging budget for 2016

October 09, 2015, 23:24 UTC+3 Alexandrova Lyudmila
© ITAR-TASS/Valeriy Sharifulin

MOSCOW, October 9. /TASS/. Challenging, recessionary but workable - that’s how Russian economists estimate draft budget for 2016, which was approved by government on Thursday.

At the final stage of its consideration 2016 budget was only updated by increasing defense expenditures by 170 bln rubles ($2.7 bln), according to Vedomosti business daily. Thus, budget deficit rose from 2.8% planned earlier to 3% of GDP, which is the ceiling allowed by Russian President. Total budget expenditures increased to 15.94 trillion rubles ($258 bln). Initially, the budget implied $60 per barrel oil price but due to downgrade of crude forecast to $50 per barrel the budget lost 900 bln rubles ($14.5 bln), and the Finance Ministry planned to cut expenditures by almost 600 bln rubles ($9.7 bln). Instead, revenues were increased by the same 600 bln rubles ($9.7 bln) as taxation of oil and gas sector and extension of freeze of accumulative pension contributions served as additional source.

The ill effect of the decision to transfer 342 bln rubles ($5.5 bln) worth of accumulative pension contributions to the budget will be mitigated by allocating those funds to a special purpose fund, which will be spent on particular decision of President or Prime Minister.

All in all, according to the data provided by the Finance Ministry, budget deficit will stand at 2.36 trillion rubles ($38.2 bln), which will be covered by 2.14 trillion rubles ($34.6 bln) worth of finances from the Reserve Fund, where 1.25 trillion rubles ($20.2 bln) will be left. Almost all resources of the Government House, excluding National Wealth Fund, which has already been partially invested in the Russian economy and is the last economic reserve, are engaged in the budget.

In 2016, out of each 100 rubles the federal treasury will spend 19.2 rubles on defense, 12.7 rubles - on police officers, 27.6 rubles - on social protection, 15.9 rubles - on backing economy, 3 rubles - on healthcare, 3.6 rubles - on education, according to Vedomosti daily. Earlier the plan was to reduce the Defense Ministry’s budget by 227 bln rubles ($3.6 bln), First Deputy Prime Minister Igor Shuvalov said, though later the decision was made to send back 170 bln rubles ($2.7 bln).

One peculiarity of 2016 budget is that has again become 1-year, Director of the Center for Regional Reform Studies at the Russian Presidential Academy of National Economy and Public Administration /RANEPA/ Alexander Deryugin told TASS. "When it was 3-year it was implied that for next 2-3 years earlier approved figures will not be changed. Now we can forget about the figures implied in 2015-2017 budget law for 2016. The return to 1-year budget means it will hardly be possible to structure mid-term budget policy amid current environment. We’re shifting to life from day to day and we’ll solve problems one thing at a time with fewer opportunities to make plans for future development," Deryugin said.

As for budget parameters the expert said they are not at all groundbreaking. "Expenditures have decreased and the reserve fund has been largely depleted so the government took the only possible track - to cut expenditures and minimize budget deficit," he said.

"Everything has gradually moved down compared with last year. Social expenditures, expenses on education and healthcare were substantially reduced in 2014-2015. Now this drop has stabilized as a long-term trend. Thus on the one hand we can’t say something changed drastically in the budget, but on the other hand it’s clear that reduction of social spending and increase of defense spending are a long-term trend," Deryugin said.

"This is a defense-oriented recessionary budget," a leading researcher at the Center for Development at the Higher School of Economics Andrey Cherniavsky told TASS. "The budget is challenging as there are less resources, expenditures should be measured further on as well as we won’t be able to have such a deficit for long: 3% of GDP is a serious deficit for Russia," the expert said.

However, this view is not shared by Lecturer at RANEPA Vladislav Ginko. "Deficit is still less than in some developed countries such as the United States or France. Budget deficit could be even boosted but we want to keep triggers for economic growth," he added.

"Those who criticize budget should realize that it’s very easy just to increase borrowing inside the economy, to switch on printing presses but the government refused to do so," Ginko said, adding that the government is pursuing "a tough monetary policy, which is not related to groundless increase of cash."

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