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President Putin's 2013-15 Budget Address


Yesterday, President Vladimir Putin delivered the Annual Budget Address for 2013-15. The key takeaways are as follows.

Budget planning must be coordinated with the long-term economic strategy and MinFin’s budget rule is a priority (with a base Urals price set as a ten-year average as of 2018 and expenditures calculated as oil revenues assuming the base Ural price plus a budget deficit not greater than 1% of GDP). By year-end, MinFin is to prepare a long-term budget strategy (to 2030), which must coincide with the economy’s goals.

Budget expenditure efficiency, with an increasing share of education, science and infrastructure.

Programme budgeting (budgeting system providing detailed costs of every activity to be carried out) and its electronic format: to be implemented in full in the budget for 2014-16.

Pension reform deadline set for September 2012.

Along with the goal to diversify the economic structure, taxes for nonoil& gas industries are not to be increased until at least 2018.

Due to improved efficiency of sovereign funds’ management, Putin suggested setting up a special investment management agency and broadening opportunities for investment strategies.

A substantial part of the address focused on improving the efficiency and transparency of government expenditures and LT fiscal sustainability. We expect the proposed ‘budget rule’ to make budget expenditures less dependent on the economic cycle and oil price fluctuations. We note the use of the wellbeing fund for infrastructure investments – one of the sources for investment-led growth over the next few years and a way to achieve Putin’s 25/27% targets. The latter might be possible only if the pension system becomes self-sufficient and its burden on the budget eases. However, the final version of the pension system reform has been postponed until September. Also in the spotlight were goals to make taxation more stable and transparent, increase autonomy of the regions and to adopt the budget for WTO accession. 

Alexey Moiseev, Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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