BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/16
The need to cut spending reflects a precipitous deterioration in the government’s revenue outlook. Under the Duma-approved bill, federal budget revenues in rubles decline 13 % this year. The figure entails revenues from oil and gas taxes will fall by nearly a quarter and that other revenue streams will decrease by a couple of per cent. In such case, the budget deficit will be around 3.7 % of GDP. The price of Urals crude is assumed to average $50 a barrel this year, while GDP would contract 3 %. In January-March, revenues to the federal budget fell over 2 % y-o-y.
The Duma only made minor adjustments to the federal spending structure. Defence spending rises this year about 25 %, while spending on national security and law enforcement remains virtually unchanged. Budget transfers to regions were reduced and will decline by over 10 %.
Notably, transfers to the Pension Fund were increased and will rise by 25 % this year. The hike is to make up for a slight reduction in estimated revenue from a slower rise in wages than earlier projected. The estimate of Pension Fund out-go was also raised. Further pension hikes have been needed as inflation last year came in higher than assumed when earlier pension increases were set. Pension Fund spending will rise about 25 % this year and spending from all social funds even faster. The combined deficit of social funds amounts to about 1 % of GDP.
Federal budget revenues, % change y-o-y
Sources: Finance ministry, Rosstat