O.B. Kirillov
In November, the growth in federal budget expenditures has expressly exceeded the revenues. The in­crease in expenditures happened largely due to the two factors: the reduced backlog versus the estimated budget and the forthcoming elections of the Deputies to the State Duma and the RF President . This was also based on the significant irregularity in revenues, administered by the Federal Tax Service. As a result, the share of this category of revenues in GDP has exceeded for the first time in 2007 the relevant indicator of preceding year. In November, the Central Bank of Russia has proposed to perform the exchange operations with the RUR portion of the Stabilization Fund in foreign currency in the open market. This is explained by irregular budget spending during the year, by the elections to the State Duma and the approaching elections of the RF President. It should be noted that a significant mitigation of fiscal policy in view of general politi­cal trend has accelerated the growth of prices at the end of the year.

A remarkable event in November 2007 in the budgetary sphere was a significant excess of federal expen­ditures (31.31 per cent of GDP) over the revenues (22.36per cent of GDP), resulting in a substantial deficit (8.96 per cent of GDP) (see Figure 1). Such a significant deficit is unusual to the Russian federal budget, but we have predicted the substantial increase in budget expenditures at the end of the year in the previous sur­vey. A similar situation was observed in 2005. In that year, in September and December the federal budget deficit amounted to 0.29 per cent and 0.99 per cent of GDP respectively. However, it is worth noting, that the share of deficit in GDP was significantly lower than in November 2007.

Despite the explicit growth of expenditures of the RF budget in November6, in general, within January-November of 2007 revenues have still exceeded the expenditures (See Table 1).

Table 1. Basic Parameters of the RF Federal Budget in 2005-2007 (% in GDP)

Source: RF Ministry of Finance, RF Treasury, IET estimates.

There are two major reasons for dramatic growth in federal expenditures at the end of 2007. First, the mitigation of fiscal policy in the framework of the current political cycle in anticipation of the parliamentary and presidential elections. Second, the irregular budget expenditures during the fiscal year and as a conse­quence, the growth of expenditures at the end of the year.

We have considered the execution of the federal budget on cash basis as compared with the budget esti­mates for the first three quarters of 2007 in detail in the preceding survey. Now we would like to note again, that in general, the execution of the federal budget on cash basis, in terms of revenues, as well as expendi­tures, in the course of the year has gradually approached the budget estimates for the relevant period. At the same time, while the revenues in the third quarter of the year have exceeded the budget estimates, the expen­ditures fell behind the planned value by 16.2 per cent. It is worth saying, that the explicit growth of national budget expenditures has boosted up the inflation rate at the end of 2007.

Attention should be paid to the comments of Alexei Kudrin, the Minister of Finance, on the irregular exe­cution of the federal budget in terms of targeted programs and national projects. He has stated, that the quo­tas of the federal funds for the government authorities were disclosed for the period after January 1, 2007. The problem is in untimely decisions on financing some projects, as well as delays in development of design documentation for eighty objects of targeted federal investment program. An important factor was the entry into force of the new City Planning Code. A series of regulatory documents should have been worked out for its implementation, which appeared only in April.

The data on financing of federal budget expenditures in January-October 2007, provided by the RF Minis­try of Finance, can be seen below

Table 2. Amount of Revenues to the RF Federal Budget in 2005-2007 (% in GDP)

There were no significant changes in the revenue portion of the federal budget within the past month. The structure of tax revenues of the federal budget for the period under review as broken by individual federal administrative bodies is presented in Table3.

Table 3. Amount of Revenues to the RF Federal Budget in 2005-2007 (per cent of GDP in terms of cash basis execution)

Within January-November 2007, there is observed some access in the revenue, raised by all federal ad­ministrative bodies as compared with the relevant indicators of preceding year, accept for the Federal Tax Service (the reduction in revenues of this administrative body made 0,62 % of GDP). The decline is largely based on the reduction of export customs duties by 1.53 per cent of GDP versus the level of preceding year.

Monthly dynamics of oil and gas revenues and the federal budget deficit thereof are presented in Fig. 2. .Other than oil deficit is one of the key indicators for external economic risks estimation in terms of national reserve stability. As can be seen from the graphs below, the re is a trend to reduction of the share of oil and gas revenues in the federal budget and GDP. This is a sign of some decrease in the budget dependence on the commodity sector in the Russian economy. At the same time, the share of oil and gas revenues, despite a slight decline, remains rather high. The average non-oil deficit of the federal budget for the period under review remained within 2-6 per cent of GDP. This reflects the sustained risks to the stability of public fi­nance and requires prevention from excessive mitigation of fiscal policy on the part of the government.

The RF Stabilization Fund in 2006-2007 (in % of GDP)

Proceeds from the placement of the Stabilization Fund assets of the Russian Federation in 2007 amounted to RUR 151.89 billion. Those revenues include the ruble equivalent of USD 6.20 billion, transferred by the Bank of Russia in the form of interest for the usage of the Stabilization Fund assets in foreign currency, placed in the accounts with the Bank of Russia as of December 15, 2007. The estimated return on the Stabi­lization Fund placement for the period from December 15, 2006 to December 15, 2007, has amounted to 10.94 per cent per annum (in USD). The exchange rate differences from the revaluation of balances in the account of the Stabilization Fund in foreign currency for the period under review has amounted to - RUR 58.59 billion.