USD 32 billion by the end of August, USD 38 billion lower than a year before. In order to stem the bleeding from this fund, the government made two debt issues, one in May the other in September, for a total of USD 3 billion. Given that its bonds trade freely on the secondary market, the government could make greater use of this means of financing its deficit.
The 2017 budget was officially presented on 13 October and will be submitted to the Duma on 28 October, alongside the revised 2016 budget. The headline items have already been announced.
The government has decided to introduce a program of fiscal consolidation over the next three years1 (2017 to 2019). Returning to this approach (which had been abandoned in the previous two budgets) will encourage greater transparency, as the financing of the deficit remains the main problem.
The Finance Minister’s aim is to decrease the fiscal deficit from 3.2% of GDP in 2017 to 1.2% in 2019, requiring a one-point reduction each year.
Two thirds of this consolidation will come from a freeze on spending (in nominal terms) at RUB 15.8 trillion over the period 2016 to 2019. As a percentage of GDP, this means that public spending will fall from 19% of GDP this year to just 15.7% in 2019. As the details have not yet been announced, it is hard to assess the feasibility of such a programme. The government has still not announced whether or not it will freeze public sector pay for the third year running. However, it is likely to allow an increase in pensions of between 5% and 6%. In order to offset this increase, it will probably have to make further cuts to education and health spending, which will have the effect of reducing potential growth.
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by Johanna MELKA