ALEXANDER DERYUGIN: “REGIONAL REVENUES ARE LIKELY TO START FALLING”
Alexander Deryugin, Researcher of the Budget policy Department of the Gaidar Institute, told ”Davydov.Index” that Russian regional revenues have set a 5-month record, but scenario of further growth is still unlikely.
I have not yet looked at the regional income figures since the beginning of the year, thus, I am not in a position to analyze them. However, it is quite evident that their fall will begin. After all, many companies are now closing down. It is true that inflation plays into hands of budget revenues, but this source of growth is nearly exhausting. The price hike we observed at the beginning of the year has already been exhausted, and I do not see any opportunity for further growth in revenues.
Thus, it is likely that regional revenues will start falling. However, this situation is not tragic: the regions have accumulated good reserves based on last year's results. Moreover, the federation is always ready to provide additional financial aid, to replace commercial loans with budget ones (in fact, free of charge), or to prolong these loans. In addition, in the first 5 months of this year, the regions had a good budget execution: inflation increases revenues, but this does not mean an automatic growth in expenditures.
Definitely, there are a number of social expenditures which should be indexed for inflation, but this is done afterwards. The budget is based on the inflation forecast, which this time was much lower than its actual values. The indexation of expenditures will take place next year. Now expenditures are underfunded (and capital expenditures will experience negative impacts, i.e. the capital construction will sag a lot this year, facilities will not be commissioned on time, etc.). However, regions have a small debt, and I do not see any problems regarding budget execution this year.
Next year is likely to be much harder. By all means, many factors will influence the situation, but most experts are prone to believe that sanctions will not simply be lifted, rather, they will be even more harsh. First the primary sanctions and then, when Europe is able to reject Russian energy resources completely, the secondary ones. Then both the US and Europe will start imposing them, and that will be tough.
If energy resources can be redirected to eastern markets now, we would be close to losing all markets altogether in case of secondary sanctions. No one in China or India is willing to take serious risks. Well, then everything will depend on inflation: if it is high in Europe and the US, people will be unhappy and outraged, whereas the ruling elites do not want instability.
So far, they are blaming all the problems on us, they say it is Russia's fault. However, may be, it won’t work and the resentment will intensify. Thus, the introduction of secondary sanctions will depend on both inflation and the political situation. If that is more or less stable in the West, the secondary sanctions will be imposed on Russia and we will have a hard time. If the threat of a destabilized situation inside Europe and the US persists, things will go gently for Russia.
Thus, it is likely that regional revenues will start falling. However, this situation is not tragic: the regions have accumulated good reserves based on last year's results. Moreover, the federation is always ready to provide additional financial aid, to replace commercial loans with budget ones (in fact, free of charge), or to prolong these loans. In addition, in the first 5 months of this year, the regions had a good budget execution: inflation increases revenues, but this does not mean an automatic growth in expenditures.
Definitely, there are a number of social expenditures which should be indexed for inflation, but this is done afterwards. The budget is based on the inflation forecast, which this time was much lower than its actual values. The indexation of expenditures will take place next year. Now expenditures are underfunded (and capital expenditures will experience negative impacts, i.e. the capital construction will sag a lot this year, facilities will not be commissioned on time, etc.). However, regions have a small debt, and I do not see any problems regarding budget execution this year.
Next year is likely to be much harder. By all means, many factors will influence the situation, but most experts are prone to believe that sanctions will not simply be lifted, rather, they will be even more harsh. First the primary sanctions and then, when Europe is able to reject Russian energy resources completely, the secondary ones. Then both the US and Europe will start imposing them, and that will be tough.
If energy resources can be redirected to eastern markets now, we would be close to losing all markets altogether in case of secondary sanctions. No one in China or India is willing to take serious risks. Well, then everything will depend on inflation: if it is high in Europe and the US, people will be unhappy and outraged, whereas the ruling elites do not want instability.
So far, they are blaming all the problems on us, they say it is Russia's fault. However, may be, it won’t work and the resentment will intensify. Thus, the introduction of secondary sanctions will depend on both inflation and the political situation. If that is more or less stable in the West, the secondary sanctions will be imposed on Russia and we will have a hard time. If the threat of a destabilized situation inside Europe and the US persists, things will go gently for Russia.