Federal Budget Deficit: Are There Any Reasons for Anxiety?

According to the preliminary estimates published by the RF Ministry of Finance, the federal budget for January - February 2012 was executed with a deficit of $ 245.3bn, or 3.0% of GDP.

The RF Ministry of Finance Russia has admitted in this connection that one of the factors responsible for the amount of federal budget expenditure being higher than that of federal budget revenue was the necessity to transfer subsidies to state-funded institutions in order to enable them to fulfill government assignments in accordance with the new plan that envisages lumpsum transfers at the beginning of each quarter, whereas previously subsidies had been transferred on a monthly basis. As a result, the cash-based execution of some items of the federal budget as of the end of January amounted to as much as 20% of their per-annum outlay. Thus, for example, the expenditures under Item ‘In-hospital Medical Care' constituted 24.2%, and those under Item ‘Outpatient Care' - 28.1% of the corresponding per annum targets.

There also exist some other causes of the substantial growth of federal budget expenditure as seen by the results of the first two months of the year 2012. There have to do with the elections, which resulted un an uneven financial coverage of different items and subitems of budget expenditure. In particular, the cash-based execution, in January - February, of the Subitem ‘Mobilization and Military Training for Civilians' of the Item ‘National Defense' amounted to 57.2% of the approved budget targets; and that of the Subitem ‘Youth Policy and Children's Health' of the Item ‘Education' - to 60.6%. At the same time, the cash-based execution of some other items and subitems did not exceed 5% of the per annum targets (for example, ‘Housing and Utilities Sector' - 2.9%;‘Fuel and Energy Complex' - 0.3%).


Possibly, it was the political uncertainty of February that was also the reason why 25% of the per annum expenditure target set for the Item ‘Dotations for Budget Sufficiency Equalization of Subjects of the Russian Federation and Municipal Formations' was achieved in the course of this year's first two months.


On the whole, the results of the period of January - February 2012 demonstrate that the cash-based execution of federal budget expenditure amounted to 16.6% of the per annum targets, and that of federal budget revenue - to 15.8% (with regard to oil and gas revenues - 18.2%) of the forecasted volume of federal budget revenue for the year 2012.


Thus, although Russia's federal budget deficit for the first two months of 2012 rose to 3.0% of GDP, the existing ratio of the growth rates of budget revenue and expenditure is quite acceptable. Given the current level of the international prices of petroleum products it can be expected that towards the year's end the federal budget may well be executed without any deficit.


T. V. Tishchenko, Candidate of Economic Sciences, Senior Researcher, Budget Policy Department