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Sunday, December 4, 2016

The Central Bank announced the end of the recession, forgetting about the catastrophic budget hole


The Federal budget deficit Russia is escalating. For the first half of the year it will exceed 1.5 trillion. rubles, considered the Federal Treasury. Simultaneously, the Central Bank argues that the recession in the country is over. It is obvious that one does not combine. Some independent economists suggest the government to continue to tear down the rouble. To somehow through falling export revenues to mitigate the deficit position of the budget they propose to print 3.6 trillion. The course “wooden” would then drop to 75 rubles per dollar and budget at least on paper will come up. Others believe this path is stupid, because the reserve funds are depleted and state employees remain without the salary. These analysts think that it is necessary to revise the budget expenditures and to cut his “big chunks”, which are now widely being spent on military and defense purpose.


photo: Natalia Muslinkina

“The index rating of Russia’s GDP suggests that the recession is behind us, and ahead of a slow growth economy”, — said the analysts of the Central Bank Bulletin “as evidenced by trends”.

However, we take the notion of the recession. It means “a relatively moderate, uncritical slowdown of production or a slowdown in economic growth.” In 2014 Russia’s GDP growth slowed to 0.6% from 1.3% in 2013. It could be called recession.

But in 2015, according to Rosstat, the decline in GDP amounted to 3.7%. The forecast decline in GDP from the Central Bank for this year — 0,3–0,7%, the Ministry of economic development expects economic decline of 0.2%. “In the medium term it is expected weak recovery in 2017-2018 (0,7–1,2%). Theoretically, that’s when we will overcome the recession and will finally begin to rise. But how to do it?

Some financial experts suggested the Bank of Russia to print additional 3.6 trillion rubles. Here it is 1990-ies, which were applied to eliminate the budget deficit and support economic growth. With a similar idea was proposed by the Financial University under the government and Institute of economic forecasting. Their proposals they sent to the Cabinet of Ministers.

The essence of the proposal lies in the fact that the Central Bank through the issuance of additional funds covered the deficit of the budget. As a rule, acting on the market, nothing unsecured ruble leads to higher inflation and weakening national currency. There are opinions that in case of such a significant issue, “wood” will fall to 75 rubles per dollar and oil will not be responsible. But the “hole” in the budget at least on paper, it will be possible to patch.

But in what way?

According to the Director of the analytical Department of Alpari, Alexander Razuvaev, there are “hot heads” who offer to the Bank of Russia to print additional 3.6 trillion. rubles. In fact, a return to the methods of the 1990-ies. With a similar idea was proposed by the Financial University under the government and Institute of economic forecasting. The essence of the proposal lies in the fact that the Central Bank is due to issue covered the budget deficit. “But, coming to the market, nothing unsecured ruble will lead to higher future inflation and the weakening of the national currency,” warns Alexander Razuvaev.

Most experts agree that the current state of the Russian economy and industry does not require such drastic measures. The fall in GDP in the second quarter slowed down significantly.

Early to rejoice not worth it. According to the Federal Treasury, the budget deficit for the first half of 2016 amounted to 1,518 trillion. rubles. It is more than 35% higher than the same period last year. Expenses amounted to 8,484 trillion rubles, while revenues did not reach $ 7 trillion. Sad. The biggest expenditures were spent on social policy, national defense and security, and law enforcement.

Experts say, need to find ways to make our financiers, including government, to work more efficiently.

“Not long ago, Deputy Finance Minister Tatyana Nesterenko, speaking about the economic situation of Russia said that if nothing changes, by the end of next year we will not have any reserves, nor the opportunity to pay public sector wages. We have serious economic problems. Indeed, if nothing changes, the reserve funds, which is still 7.5 trillion rubles, fully depleted (at the beginning of August: the Reserve Fund of 2.56 trillion, NWF — of 4.84 trillion) next year, maybe sooner. Nesterenko says is correct — you need to change something, in particular to reduce spending on the defense industry, which last year grew by more than 40%. Otherwise, talk about overcoming the recession can not start. Then we can expect even not stagnation, but a new crisis”, — said the chief editor of “Financial newspaper” Nicholas Vardul.

Rising prices and a falling ruble. Chronicle of events

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