Yesterday, the government considered the 2013-15 draft budget, with the document to be submitted to the Duma by 1 October. In his opening remarks, Prime Minister Dmitry Medvedev said that implementing the ‘budget rule’ was not a matter for discussion. The top items are social commitments, military expenditures, infrastructure and social services. Besides, the draft Pension System Strategy submitted by MinLabour is to be the subject of public discussion, with the decisions to be hammered out by the end of this year.
Minister for the Economy Andrey Belousov expects a smaller contribution from oil and gas exports over the coming years, coupled with a tighter link between wages growth, labour productivity and improved competitiveness of local producers, while fiscal containment might subtract up to 1pp from the GDP growth. Critically, this forecast relies on technological developments and healthier capital flows underpinned by an improved investment climate from 2014. Minister of Finance Anton Siluanov argued that ‘budget rule’ shanks some nominal growth in fiscal expenditures. His long-term target for the non-oil deficit is 4-5% of GDP (vs. the 8.5% pencilled in for 2015).
Strictly following the ‘budget rule’ is a prudent fiscal approach which puts a drag on balancing oil (given MinEconomy’s updated forecast of it remaining near RUB 3,400-3,500/bbl over 2013-15). Meanwhile, social promises are treated as a top priority, which is supportive for consumption, even if to a lesser extent than in the previous 3-4 years. Hence, we see the overall tightness of coming fiscal policy as a necessary constraint to increase the efficiency of budgetary spending. It thus anchors healthier, though lower, growth.
Maxim Oreshkin, Daria Isakova
VTB Capital analyst
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