BOFIT Weekly Review 2015/34
Regions and local governments face precarious budget circumstances
First- and second-quarter revenues to the consolidated budget (federal, regional and local government revenues plus state social funds) were unchanged in nominal ruble terms from a year earlier. With 12-month inflation running at 16 %, however, revenues collapsed in real terms. While non-oil-&-gas budget revenues were up 9 % y-o-y nominally, revenues from taxes on oil, oil products & gas production and exports in 1H15 were down about 20 %.
Spending in nominal terms rose by about a fifth, yielding a budget deficit equivalent to 2.6 % of GDP. Disbursements this year have followed an accelerated schedule compared to typical annual spending cycles. If the finance ministry’s summer projection for 2015 spending is realised, the second half of 2015 will be very grim as nominal spending growth for the second half will be limited to just 1 %.
While federal non-oil-&-gas revenues were up over 6 %, the slide in oil & gas tax revenues reduced federal budget revenues by 7 % y-o-y. Transfers from the federal budget to other budgets were up over 15 %, with most of the new spending going to the Pension Fund. Other federal spending also rose over 15 %. The budget deficit was 2.3 % of GDP.
Revenues to regional and local budgets (incl. transfers) rose by over 10 %. While nominal received transfers only increased 6 %, other revenues were up 12 %, which is somewhat notable given the current recession. Budget expenditures, in contrast, rose just a few per cent, which kept the budgets in surplus. Most regions struggle with financing deficits and debt. Local budgets were already stretched in 2014 and this year they have only seen revenues, income transfers and spending increase 3–4 %. Growth in local revenues and spending also significantly lags long-term inflation.
Tax revenues of social funds and inter-budget transfers rose well in nominal terms. Due to the very rapid rise in spending, the social funds deficit was about 1.5 % of GDP.
Budget revenues and spending in real terms
Source: Ministry of Finance, BOFIT