Russian cabinet decides to increase spending this year, abandons last spring’s budget framework

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/41

The Russian government this week submitted to the Duma a proposed amendment to this year’s federal budget act that increases budget spending by 0.3-0.4 % of GDP compared to this year’s approved budget. This differs visibly from the policy goals underlined last spring, when leading policymakers stated on numerous occasions that spending cuts this year were essential to reining in the federal budget deficit. In the spring the cabinet decided, however, to postpone any spending cuts to this autumn.

Under the amendment and according to prime minister Dmitri Medvedev, spending rises and redirection of existing spending will allocate more money to the National Pension Fund and other priority spending areas. The proposal apparently includes a substantial increase in defence spending.

Lower-than-expected oil prices have reduced federal budget revenues. This year’s budget initially assumed that the price of Urals-grade crude oil would average $50 a barrel this year. The average price this year has been about $40. The spending increase means that the federal budget deficit will widen this year to 3 trillion rubles (€43 billion), or 3.7 % of GDP (original deficit ceiling 3 %). The deficit increase is planned to be covered through e.g. increasing domestic debt and divestment of stakes in state-owned enterprises. Most of the budget deficit, of course, will be funded out of the Reserve Fund, but in the amendment there are no propositions to increase the amount of planned withdrawals this year.

Show weekly Review 2016/40 Show weekly Review 2016/42