The new Duma, hastily convened for stamping multiple emergency laws and, in particular, the draft budget for next year, will have to first approve the final version of the 2016 budget. It was just released by the Ministry of Finance and was full of surprises.
Though federal revenue this year will be significantly lower than planned, government spending increased significantly (from 16.1 trillion to 16.4 trillion), the “open” part of government spending has been reduced by almost 0.4 trillion and the “closed” has grown about 0.7 trillion.
“Closed” consists of secret and top secret, he notes, “firstly, the military (but not only them).”
Almost everything that is connected with the immediate benefit to ordinary citizens, is to be put under the knife, in contrast to last year, they are no longer hesitant and even transfers to the Pension Fund increased by a couple hundred of billions of rubles. But the main prize is prepared for the military. More precisely, the military industrialists, as you might expect.
“In making these proposals,” he continues, “the Finance Ministry has abruptly changed course…”
“Numerous statements by Finance Minister Anton Siluanov expressed the invincible will to further reduce the budget deficit by cutting down on government spending, including the military, and to reduce inflation to the unprecedented in the post-Soviet era four percent in the next two to three years.”
The budget deficit could be as high as 3.9%, he writes. The Russian Finance Ministry has already conceded that they have exceeded their targets, and that the deficit could sit at 3.7% by the end of 2016. Shelin also acknowledges that the government is manipulating these numbers, and using the Reserve Fund to cover their losses, among other things.
The current relative stability of the Russian economy and finance (albeit without any prospects for the transition to growth), slowing the rate of decline in living standards and a fairly impressive reduction of inflation – is the fruit of the policy of containment of public expenditure, which, until recently, was held by Siliuanov’s Ministry of Finance, in alliance with Nabiullina’s Central Bank.
I do not know if this is a one-off surge in government spending, which will happen between October and December, but if something like that will continue in 2017… stability can be scrapped.
Shelin then attempts to defend Finance Minister Siluanov, and places the blame at Putin’s door:
The supervisor of Anton Siluanov is Vladimir Putin. The reason for the sudden change in the budget views of Minister can only be obtained on his [Putin’s] orders.
It is clear that first and foremost this is an additional lever for the Supreme Commander and the Minister-redistributor will be only an advisor and a responsible executor [of the President’s will].
The author thinks that there are two explanations for what is happening. One is political. The so-called “detente” with the US is not working. Syria is a problem, and the new report about the shooting down of the Malaysian flight MH17 did not help matters. Meanwhile, the Russians have halted cooperation on a 2000 agreement on disposal of weapons-grade plutonium.
So the emotional atmosphere in October can in principle be considered suitable for impulsive arms build-up, without regard for economic consequences.
But you cannot count, because financial realism sometimes (and this is not uncommon) coexists with the most acute foreign policy conspiracy theories.
Shelin also suggests that the move could be what he calls “tactical”. Essentially that the government is robbing Peter to pay Paul (to use the cliche). Which he already suggested in his reference to the Reserve Fund.
There is one other explanation that Shelin does not offer. The Reserve Fund and the National Welfare Fund fell by nearly 155 billion rubles in September. The two funds collectively have about $105 billion left in them (on paper, anyway). If the government stays on this trajectory, the funds will likely run out in the next six months. And after that, it is unclear what the government will do.
They are still offering bonds and so on, but the money they are getting from that is minimal at best. Their privatization
scheme scam (which I have written about previously) is not going well. Bloomberg recently reported that the government took a loss on its sale of a stake in diamond miner, Alrosa.
I don’t anticipate that the newly re-instituted sales of stakes in Bashneft and Rosneft will go any better.
And what then?
Après nous le déluge
After us, the deluge