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Sunday, October 23, 2016

The Ministry of Finance closes the holes in the budget with Putin’s words

The office of Anton Siluanov reported that in July the two main piggy Bank Russia has significantly expanded the Reserve Fund 4.2 percent, to 2.56 trillion rubles, NWF — by 3.57%, to 4.84 trillion rubles. Moreover, the Ministry of Finance is actually recognized as earned with these funds: “verbal intervention” of the officials who stopped in the past month, the strengthening of the ruble. Profits appeared on exchange rate differences between the Russian currency and dollar—Euro. Of course, the accumulated funds will help to cover the budget deficit. But too early to rejoice. The budget is based to $50 per barrel oil, and now it barely comes to $42. Accumulated funds the state will have to spend on public sector wages, and provision for repayment of these debts is not enough.

photo: Natalia Muslinkina

The increase in the reserve funds, the Ministry of Finance explains the decrease in the value of the domestic currency. In July, the dollar has risen from 63 to 67 rubles. The “wood” flew down after a request from Vladimir Putin to Dmitry Medvedev that the officials watched the growing ruble exchange rate. A number of officials here confirmed that the ruble strengthened illogical and it must be stopped. As a result, now we have 75 rubles and 67 rubles per dollar.

The Ministry of Finance, these “verbal interventions” in just a month allowed to earn on revaluation of foreign currency more than 271 billion rubles.

However, in monetary terms, in July, the volume of the Reserve Fund fell 0.1%, while the national welfare Fund — by 0.8%. It’s not weird. The basis of accumulation funds are the proceeds of oil exports, the quotations which leave much to be desired. If at the beginning of July the cost was $50, now it is barely $42. Considering that the Russian budget for 2016 calculated on the basis of fifty, then hope for his execution without a deficit no.

However, no illusion was experienced. In January-February, officials admitted that the budget deficit in 2016 will exceed 3% of GDP. In absolute terms this can be represented as follows: projected budget revenues — about 13,58 trillion rubles, expenses — of 15.94 trillion. The difference is about 2.3 trillion.

To close this hole accumulation Reserve Fund and national welfare Fund is able with a vengeance. But, recall, the budget expects oil to cost $50, but at this level, “barrel” this year it was held only a month — from June to July.

All this can dry up domestic reserve funds, and in the autumn the Finance Ministry will have to declare not an increase (even in ruble terms), and on the reduction. This is supported by the fact that the officials recognized the risk of possible financial “storm”. It is this epithet used Deputy Finance Minister Tatyana Nesterenko, speaking about the economic situation in Russia. “If nothing changes, by the end of next year we will not have reserves nor the ability to pay salaries, we have serious economic problems,” she said.

The same opinion of the HSE analysts, who calculated that due to the fall in oil prices, the budget for 2016 will be reduced by 1.8 trillion rubles. But they are more pessimistic. According to them, if this happens, then the Reserve Fund will be exhausted this year and to cover the budget deficit will have to use the SWF, which (at low energy costs) also will not last long.

So what should be changed? Analysts believe that officials are referring to the reduction of the social burden, for example, increasing the retirement age. “But this is unlikely to significantly change the situation. Reserve funds will sooner or later come to an end. If not this year then next year for sure. We need to change the priorities of the Federal budget. First and foremost, to shift costs for the defense industry, which constitute 19.2% of the budget in 2016, on the side of the sphere, whose share equals to 27.7%,” — said the Director of the Institute of strategic analysis FBK Igor Nikolaev.

Financial crisis. Chronicle of events

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