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Friday, February 23, 2018

This war whom the budget: a third of all spending will go to defense and security

Despite the fact that the government has declared the reduction of military spending by 6% per year, still a third of a new three — year budget is defense, security and law enforcement. At the time, this cost structure was characteristic of the Soviet Union. Thus, according to the majority of respondents “MK” experts, the price for the economy is very high: in 2017 the government, struggling with budget deficit, fully use up the Reserve Fund, and even takes a huge funds inside the country and abroad. In addition, experts noted that the document contains ambitious goals, and even hints at a technological breakthrough. However, the draft budget 2017–2019 was approved on 13 October at the government meeting. On October 28 he will go to the state Duma.

photo: Alex geldings

Nikolay VARDUL, chief editor of “Financial newspaper”:

— The three-year budget, revisit priorities, that the funding of the social sphere is not in decline is certainly good. Plus taxes, with some reservations, not rising.

But I can’t call this project somehow a breakthrough. On the contrary, it demonstrates that the economic policy of the country will not change.

Targets for economic growth, investment is extremely unambitious. I would like to see in the document, the average annual growth rate of GDP in 2017-2018, at least at the level of 2.5–3%, investment growth in fixed capital by 5-10% annually depending on the sector, inflation at the end of 2017 in the range of not higher than 4-5%.

According to the survey “Levada-Center”, the Russians for a year have less confidence in the state structures. The rating of the government decreased by almost two times (from 45% a year ago to 26%) and was the lowest over the last five years. In fact, it means the existence in society of a request for a change.

Pavel SIGAL, the first Vice-President “Support of Russia”:

— The draft Federal budget for 2017-2019 formed on the basis of pessimistic estimates, in the long run to curb the growth of the deficit. Build on the positive predictions based on the rising cost of “black gold”, is extremely reckless. The problem should be solved regardless of the situation on foreign markets.

Even if key performance indicators such as oil prices — are much higher than envisaged in the draft budget, expect that there will be recorded a surplus, not worth it, as spending on defense will only increase in the coming years, and in the notification procedure.

Not to mention that the budget for the next three years involves changing the “geographical aspects”. For example, if the state program “Socio-economic development of the Far East” for 2017 funded by only 49.7 per cent of the level in 2016, the cost of the program of socio-economic development of the Kaliningrad region will be increased 67.8%. It is also planned to significantly increase the share capital of JSC “development Corporation of North Caucasus” for the development of the investment environment in the district.

However, the most interesting is the sources of funding for the new budget. The government plans to seriously “lean” on the debt market. The Ministry of Finance will increase the volume of borrowing on the domestic market more than tripled compared to 2016 year — on-year to 1.05 trillion rubles a year, while the volume of loans on the external market will grow more than twice — to $7 billion.

Vitaly BAGMANOV, managing Director, BCS “Ultima”:

— A new budget characterized by the fact that the government tried to reduce the deficit. Thus, by and large, the authorities protect social orientation. For example, spending on social policy increased from 4,631 trillion in the current year to 5.1 trillion rubles.

With regard to the parameters that were used in the calculations, but now they seem too conservative. In particular, for 2017 laid down the price of oil to $40 per barrel, although there is a high probability that prices will rise. In the calculations for the 2018-2019 the price of oil is $55 per barrel. The exchange rate in the forecast is 67 per dollar.

It is worth noting that the budget is based on the rate of inflation of 4% in 2017. All built on this indexing, including the growth of tariffs. Given that now the Central Bank, the MAYOR and the Finance Ministry are taking the figure for the base unit, there is a real reason to believe the achievement of this goal next year. This, of course, will be a historic event for the Russian economy. In such circumstances, there can be huge fall-off in interest rates in the economy and improved economic, consumer and credit activity in 2018-2019, therefore, most likely, the budget parameters should be revised seriously in the coming years.

Vasiliy SOLODKOV, Director, Banking Institute of Higher school of Economics:

— In fact it is the project of the budget of a country at war, despite the fact that no one really is going to attack. On national defense in 2017 will spend 17.6% of budget, and security and law enforcement is 12.2%.

For comparison. Health care provided 2.3 percent on education and 3.5%. Total resources in the domestic economy, 5% less than pure military spending.

This cost structure is typical for the country, which is fighting. We are told that the company in Syria does not take additional funds of the Ministry of defense. Maybe it is, but in this case it makes sense to reduce funding for this Agency.

Unfortunately, the authorities have not learnt one simple lesson. One of the reasons for the collapse of the USSR was the excessive spending on the military industrial complex with the simultaneous decline of prices for hydrocarbons. In 1980-e years we have done more than all the world of tanks and submarines that still can’t recover.

I believe that having a 3.5% to education, the government has now laid the future competitiveness of the Russian science, which should actively participate in innovation, producing new technology. Right often complains about our President.


Income 13,492 trillion rubles.

Expenses 16,160 trillion rubles.

The deficit is 3.2% of GDP.

Deficit financing:

Domestic borrowing — up to 1.05 trillion rubles.

External — up to $7 billion.

Reserve Fund at the end of 2017 — 0 rubles.

The national welfare Fund (NWF) — 3,973 trillion rubles.

The average price for the year, Urals oil — $40 per barrel.

Rising prices and a falling ruble. Chronicle of events

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