DOUBLE DEFICIT

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PARAMETERS OF THE THREE-YEAR BUDGET ARE TO BE ADOPTED

Try as it might, the government cannot reduce the budget deficit as fast as it would like to.


Chaired by Premier Vladimir Putin, the Budget Commission will be meeting today to adopt parameters of the next three-year budget. Insiders admit that public expenses will go up despite all efforts to keep them down. Under the current law, public expenses next year should amount to 9.3 trillion rubles. In fact, however, they will equal 10.4 trillion rubles. Public expenses will increase from the initially planned 9.7 to 10.8 trillion rubles in 2012 and from 10.1 to 11.8 trillion rubles in 2013. “The year by year increase is not going to be all that much. Public expenses will increase by only 1.7% of the GDP next year,” said a government functionary.

Public revenues will go up as well. This June, the Economic Development Ministry revised the oil price forecasts from $58 to $75 in 2011, from $59 to $78 in 2012, and to $79 in 2013. The Finance Ministry came up with the idea of selling state interest in ten major corporations (Rosneft, Sberbank, VTB, Russian Railways, RusHydro, and so on). It said that the state would earn about a trillion rubles in this manner.

Regrettably, all these additional revenues will fail to cover the new expenses. Budget deficit will amount to 3.6% of the GDP in 2011, 3.1% in 2012, and 2.9% in 2013. Deputy Premier and Finance Minister Aleksei Kudrin warned a month ago that this value was going to be maximum the government could afford. Anything above this value and the Russian state machinery could forget about fulfillment of the president’s order to reduce budget deficit in 2013 to half the value recorded in 2009.

Kudrin firmly promised a well-balanced budget in 2015.

Insiders attribute the rise of public expenses to “National Defense”. This article of the budget is going to cost taxpayers 1.4 trillion rubles in 2011 or 13% more than it costs them this year.

Sources say that federal target programs are going to become 15% costlier in 2011 while social policy will be underfinanced.

“The government opted for an increase of investment expenses. We are returning to the pre-crisis budget planning when these expenses were going up too,” said Yulia Tseplayeva of BNP Paribas. “In fact, actual spendings in 2011-2013 might turn out to be even higher than planned. The government might go for it with an eye to the forthcoming elections. The government knows after all that it can afford it, due to the practically non-existent foreign debts… Increase of public expenses will encourage economic development. Should oil prices go down again, however, all these fiscal measures will fail.”

“Economic situation and oil prices appear to be recovering and firming up. That’s why the government opted for additional expenses,” said Alexander Andryakov of the Economic Expert Group. “How effectively the money will be used is the principal question, of course.”

A Finance Ministry spokesman declined comments. The functionary merely said that Kudrin was expected to take one last look at the projections before the Budget Commission meeting.

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