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MinFin considers budget manoeuvre for 2014-16


Yesterday, Minister of Finance Anton Siluanov commented on the planned amendments to the federal budget for 2014–16. Due to the slower growth in nominal GDP and lower tax revenues, budget revenues and expenditures growth were revised significantly downwards. As additional expenditures expected over the next three years are almost fully accounted for by the already signed state obligations on arms purchases, salary payments and government programmes, MinFin is considering budget manoeuvres to allocate expenditures in the most efficient way:

  • lower transfer to the State Pension Fund;
  • 5%-cut in spending outlays for state procurement; and
  • postpone the military rearmament programme beyond 2016.
  • The debates are not finished yet. The next date to watch is 4 July when another government meeting on the budget is to be held.

Amid worsening economic dynamics, budget revenues are getting narrower than previously expected. Given the strict budget rule, this limits the growth in expenditures. Considering that the draft budget implies just 3.4% YoY nominal growth next year, that is almost 50% lower growth pace than expected previously and means no support (but also no drag) on economic growth next year. Weak spending growth also creates a favourable environment for a further decline in the inflation rate.

Overall, MinFin’s manoeuvres coincide with the President’s budget address. To recall, Vladimir Putin said that the goal of fiscal policy is higher economic growth and implementing his strategic decrees without breaking the strict budget rule.

In our view, the most vulnerable and, at the same time, fruitful (if successful) part is lowering the transfer to the State Pension Fund as it requires more decisive steps towards a self-sufficient Russian pension system as the ‘no hike in the retirement age’ limitation hampers the reform’s progress.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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