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State Duma passes amendments to 2013 budget and budget plan for 2014-2016 at third reading


Both amendments to the 2013 budget and the new budget plan for 2014-2016 were cleared through the third reading, as expected, with very few changes.

According to the amendments, MinFin is allowed to use up to RUB 200bn from the Reserve Fund to finance spending commitments in 2013. We believe, however, that the Reserve Fund is likely to remain untouched this year. Historically, MinFin executes about 98-99% of the annual spending plan and we do not expect this year to be any different in this regard. Moreover, should the need arise, there is no shortage of available funds on the Federal Treasury account to cover the entire spending plan, while expensing the Reserve Fund goes against the spirit (if not the letter) of the new budget rule.

As for the 2014-2016 budget plan:

Tight fiscal stance encourages structural shifts. Following the strict fiscal rule provides a constructive environment for the authorities and SOEs to optimise costs and improve productivity.

Spending mix getting prettier on the investment front. As a result of not indexing federal wages, lowering the transfer to the SPF and postponing the rearming programme, the government was able to reassign some outlays from social obligations to investments.

Revenue shortfall to impose further spending cuts in 2015-16. Unrealistic revenue projections and upbeat macro assumptions might push the government to slash spending growth estimates for 2015-16.

One-year pause in funded part is the most discouraging spot. The government’s decision to use all inflows to the defined contributions part in 2014 to cover the PAYG deficit is not a sustainable solution. Indeed, this initiative might erode people's credence in the savings pillar and in state policy making in general.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

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