Cheap Ruble as an Instrument to Secure Sustainability of the Budgetary System

Specifically, at the Economicst’s conference, Arkady Dvorkovich, the President’s aide, estimated deficit of the 2009 federal budget at the level of 8% of GDP and admitted that under the circumstances the volume of the Reserve Fund should roughly contract as much as twice.

As a reminder, the 2008 federal budget boasted a surplus of 4.1% of GDP, while as of early-2009, the volume of the Reserve Fund accounted for 9.7% of GDP in Ruble equivalent. A rapid depreciation of the Ruble in January 2009 conduced to the situation in which as of early February, a thin margin of not more than 0.7% of GDP left until the approved threshold volume of the Fund is reached (see the Table). This means that due to rise of the USD and Euro against the Ruble, in January 2009, the Reserve Fund has earned over Rb. 830bn, or a. 2% of GDP. But this income can be fixed only providing the currency reserves of the Fund are converted into Rubles, or else should the latter appreciate, the margin would be contracting.

Indicator	2008	Leftovers of the funds as of late-2008	Approved in the 2009 budget	January 2009	Leftovers of the funds as of late-January 2009 г.
Oil and gas revenues to the federal budget	4 145,8	x	4 692,5	243,6	x
Avenues of use of the oil and gas revenues:	4 145,8	x	x	243,6	x
Oil and gas transfer	2 135,0	x	2 531,1	243,6
Reserve Fund	420,6	4 025,1	5 147,5	-	4 857,9
National Welfare Fund	1 590,2	2 584,5	x	-	2 991,5
For reference:
Revenues, total	9 274,1		10 927,1
Expenditures, total	7 566,6		9 024,7
GDP	41 540,4		51 475,0

Source: The Federal Treasury, the Central Bank

The table also suggests that should the current prices for carbohydrates remain unchanged through the year, there would be no any additional revenues to the Reserve Fund. The problem is, the 2009 oil and gas transfer is set at the level of Rb. 2531.1bn, while oil and gas revenues in January 2009 accounted just for Rb. 243.6bn, or 9.6% of the amount of the oil and gas transfer. In other words, should such a pace of completing the budget persist, the oil and gas transfer would be completed just in 10 months.

In the conditions the shortage of tax revenues to the federal budget (without regard to the mineral tax), by the most moderate estimates, may account for some 2.9-3.3% of GDP, the main burden of execution of the set expenditure obligations lays upon the Reserve Fund. Clearly, its resources will appear sufficient to execute all the obligations stipulated in the 2009 Act on the Federal Budget. But, given the rise in unforeseen expenditures (on support of the real sector, recapitalization of the banking system, etc.), a long-lasting crisis, and unpredictability of exchange rate fluctuations, the medium-term sustainability of the budgetary system will depend on changes in the nature of the budgetary policy towards restricting public expenditures and increasing requirements to their efficiency.

I. Sokolov – Head, Department of Budgetary Policy