2011 forecast for the Reserve Fund

Overall volume of the Reserve Fund of the Russian Federation as of 1 April 2011 constituted 748,530,000,000 Rubles, which did not differ much from what it was at the beginning of the year. Indeed, the Reserve Fund did not receive in the 1st quarter 2011 proceeds from oil and gas revenues, nor went to expense to balance the federal budget.

This is largely due to the fact that in January and February of this year the federal budget had a surplus (0.7% of GDP). The surplus resulted from additional oil and gas revenues because of steadily rising oil prices and because of the slow tapping of expenditures (in particular, on March 1, 2011 ministries and agencies reserved for targeted spending only 54.7% of their annual limits; key factors contributing to low budget spending. Delaying tactics for approval of regulations by the government, as well as the state of uncertainty characteristic of principal controllers of budget funds related to the ongoing reform of public institutions). However, with high probability we can expect that in the coming months, surplus will be replaced by the budget deficit, and the issue of sources to fund the budget deficit will again become urgent.

In 2011 according to IEP experts’ forecast one may expect a deficit reduction to 2.4% of GDP in the event that foreign economic environment remains favorable and the average annual oil price will be around 100 doll. per bl. Consequently, the importance of the Reserve Fund as a key source of funding for the federal budget deficit remains.
The fact is that in terms of fiscal and debt policy the existence of the Reserve Fund allows to finance budget deficit without resorting to borrowing on the market, thus avoiding the increase of the national debt. This can be accomplished through emission with simultaneous sterilization of the monetary base by way of hard currency interventions by using external reserves of the CBR. Accordingly, the Russia’s Reserve Fund is a factor, which allows to avoid the growth of debt burden and carry-forward the burden of current budget expenditure to the future generations.

In these circumstances the position of the RF Ministry of Finance is justifiable regarding prevention of the current year expenditure growth, which will allow to use the favorable external economic environment for preserving additional oil and gas revenues in the Reserve Fund.

I.А. Sokolov – Candidate of Sciences (Economics), Head of the Budgetary Policy Department