The Treasury was empty

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The Ministry of Finance submitted the draft budget for 2017-2019

Money for priority projects no, almost all state programs will be squeezed, the reserves are exhausted, and Russia has more to go into debt. The budget laid out by the Ministry of Finance, who believes that despite the reduction in Federal funding, the Russian economy will begin to grow.

The Finance Ministry has balanced the budget for 2017-2019 years, reducing budget costs by 6%, 9%, 11%, respectively.

The main efforts are presented budget policy will focus on reducing the deficit in 2017, it will amount to 2.7 trillion rubles (3.2 percent) in 2018 of 1.98 trillion rubles (2,2%), 2019 — 1.13 trillion rubles (1,2%).

Priorities fell

As a result, all the priorities of the government, old and new, which are prepared by analogy with the national project of the election campaign of President in 2012, are funded very modestly.

In 2017 the Ministry of Finance laid for this purpose a total of 30 billion rubles For the three-year period of budgetary spending on these priorities is not more than 75 billion rubles, follows from materials of Department.

Note that this is not quite what I expected in the White house.

On Wednesday, Dmitry Medvedev said that the costs for priority projects for the next year “are measured in the range of up to 150 billion rubles.” The Prime Minister also said that in nine of the 11 priority projects have certain objectives.

From the draft budget of the Ministry of Finance follows that there is certainty only for the seven projects. The two projects in the list of expenses for 2017 at all. But on three projects (“Small business and support for individual entrepreneurial initiative,” “Safe and quality roads” and “Comprehensive development towns”) for the next year funding is not provided.

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In June, the Finance Ministry said that in favor of the priority projects can be allocated up to 1% of all budget expenditures level of 2016. Then it really was about the sum of about 160 billion rubles, the Draft budget leaves President Vladimir Putin and Prime Minister Dmitry Medvedev, the choice of the distribution for priority projects provided by their reserves. The reservation is under the section “National issues” and will be in 2017 127 billion rubles, in 2018 – 128,1 billion and in 2019 is 131.5 billion.

The money can be spent on “financial support for unexpected costs on the decisions of the President and government,” reads the documents of the Ministry of Finance. But when making decisions for the country’s leaders have to take into account the fact that the Ministry of Finance, these reserves have provided including on carrying out emergency rescue and recovery operations and other activities related to the elimination of consequences of natural disasters and other emergencies.

Therefore, the priority projects, most likely, the government will have to fill is already included in the ordinary budget the expenditure on long-planned goal.

Absolute costs

Other opportunities to raise funds in the budget of the Ministry of Finance is not provided. The fact that

another feature of the current budget – total absence conditionally approved expenditures.

Until 2016 the government had the right to leave Unallocated in the budget not less than 2.5% of the total expenditure budget for the next year and at least 5% of the total expenditure budget for the second year of the planning period. These funds were distributed with the participation of the state Duma in the spring, while editing the budget. In 2015, therefore, were distributed to 400 billion rubles.

This practice by the Ministry of Finance was cancelled for budget for 2016, with the abolition of “fiscal rules”. In 2017 the Ministry of Finance demanded to keep the restriction, by making a bill with the relevant amendments to the Budget code. In 2018-2019 conditionally approved expenses is also not defined.

The explanation is provided in materials of the Ministry of Finance laconic: “given the significant worsening of economic dynamics, including the situation on world commodity and financial markets, the receipt of additional oil and gas revenues of the Federal budget in 2017 are projected to be, and the provisions of the Budget code of “budget rules” suspended”.

The modest capabilities of recipients

The proposed construction budget reflected the different capabilities of the main managers of budgetary funds to defend their expenditure. So recipients of defense contracts are unable to seriously increase spending, similar to the year 2016, when their use was re-allocated more than 600 billion rubles of social and investment expenditures.

Budgetary allocations under section “national defense” compared to 2016 will be reduced by the amount of more than 1 trillion rubles Share in total expenditure under this section in 2017 compared to 2016 will decrease from 23.7% to 17.6%. In 2018 and 2019, the share would amount to 17.1% and 17.9%, respectively.

From the civilian budget clearly lost the lobbyists from the Far East. The state program “Socio-economic development of the Far East” for 2017 funded by only 49.7 per cent of the level in 2016. More than 20% of the funding lost 6 of government programs, including the program “Development of health” (25%) and “Promoting employment” (-29,4%), “the Development of shipbuilding and equipment for offshore fields development in 2013-2030 years” (-30,3%), “energy Efficiency and energy development” (-27,2%).

Also 22.8% of the lost funding the state program “Economic development and innovative economy”. The loss of the main investment program of the budget could be more serious. But this program has been included subsidies for the reorganization of the Bank in the amount of 150 billion rubles in 2017. The hope is to increase the share capital of JSC “development Corporation of North Caucasus” for the development of the investment environment in the North Caucasus Federal district.

Increase the cost of 9 state programs. So a significant increase of 67.8% compared to spending for 2016 is provided according to the program socially-economic development of the Kaliningrad region.

Also more than 20% increase in the cost programme “Development of physical culture and sport” and “public Finance Management and regulation of financial markets”. The increase in the final program is associated with the increase in the cost of administering the tax system, rising costs of external debt and other government obligations in foreign currency.

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Who will pay for this budget?

The main sources of financing the budget deficit. This reserve funds and borrowings. The reserve Fund will be spent in 2017. NWF will end by 2019.

In addition, the Finance Ministry intends to increase in the next three years the volume of borrowing on the domestic market by approximately three times compared with the year 2016 to 1.05 trillion per year (foreign loans could reach $7 billion in 2018-2019, $3 billion). In General, the volume of public debt will remain at a safe level — less than 20% of GDP, according to the Finance Ministry.

According to the Minister of Finance Anton Siluanov, in the current year financing of the budget deficit was carried out by two-thirds at the expense of the Reserve Fund, one-third by domestic borrowing and privatization. Next year large proceeds from privatization are expected, and, in order not to waste the reserves will be substantially increased amount of internal borrowing.

According to the Finance Department and the Central Bank, the volume of placements is not much impact on financial markets and the ability of the banking sector’s lending to households and businesses.

“See now this situation is possible, the market has a fairly large amount of liquidity. Here, too, the main thing is not to overreact to investors demanded high interest rates and short papers. Therefore, we will very carefully carry out domestic borrowing”, – said on Wednesday Siluanov, speaking at the forum “Russia calling!”.

Now the Ministry of Finance finances the budget deficit at the expense of the Reserve Fund by selling the currency to the Bank of Russia.

This year he has already sold more than $17 billion to 1.17 trillion RUB. And most likely will sell it at 1 trillion rubles. On 1 October, the Fund remained 2,038 trillion rubles or $32,26 billion in addition, people and companies are showing a tendency to increase savings and lending volumes are rising slightly. As a result of all these factors in the banking system formed the so-called structural surplus of liquidity. He, on expectations the Central Bank will continue all next year.

Central Bank to ensure that the surplus money did not exert downward pressure on rates in the economy and thereby stimulated credit growth and consumption (the regulator believes that this will prevent him to achieve decrease in inflation to 4% by the end of 2017), has already begun to carry out operations to absorb liquidity. This Deposit auctions and placing of bonds of Bank of Russia.

The growth of borrowing in the next year, the Ministry of Finance and the Central Bank is considered as a tool of the same absorb liquidity.

Note that in the very first Chapter of the draft budget devoted to the main parameters, is still considered the standard value in the growth of reserves from 6 trillion rubles next year to 6.9 trillion rubles in 2019.

On the contrary, the sections devoted to sources of financing the deficit shows that the Reserve Fund in 2017 will be used in the amount of 1.2 trillion rubles in full. From the Fund in 2017 will be spent 659,6 billion rubles, in 2018 — 1.1 trillion rubles and 136,9 billion rubles in 2019. After this it will be the means, not associated with the government’s commitments to spend on infrastructure projects. The contradiction of this budget line in the Ministry of Finance to explain time has not made amendments to the Budget code and offer to believe the part where specify the sources of financing the deficit.

Also in the draft budget of the Ministry of Finance conflict with the Ministry of economic development on the budget impact on economic growth persists. The Finance Ministry insists that in 2017, GDP will grow by 0.6%, in 2018 – by 1.7%, and in 2019 – by 2.1%. On the eve of the economic development Ministry submitted to the government macroeconomic forecast, in which the base (budget) scenario envisages GDP growth in 2017 by 0.2% in 2018 and 0.9% in 2019 and 1.2%.

The final decision on all contentious issues of the budget, the government will adopt at the meeting on Thursday, October 13.

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