ILYA SOKOLOV: “MAYBE THE GOVERNMENT SHOULD ADOPT A ONE-YEAR BUDGET INSTEAD OF A THREE-YEAR ONE”
The Ministry of Finance, the Ministry of Economic Development and the Central Bank are discussing a new version of the budget rule and its impact on the exchange rate and the rate of economic growth. Ilya Sokolov, a Leading researcher of the Gaidar Institute, explained to URA.RU that the main function of the budget rule is to control the cap on budget spending and not the exchange rate.
In his opinion, the impact on the exchange rate is a side function of the rule in Russia. “The fact that the budget rule optionally functioned as the exchange rate mechanism was not the rule itself that worked, but rather the National Wealth Fund (NWF), because it had assets in dollars, euros and other currencies in its structure. Now some of those assets have been frozen,” he recalled.
According to Ilya Sokolov, in addition to the ruble exchange rate and the budget rule, the government is concerned that Russia could face a significant drop in income tax and PIT revenues at the end of this year or early next year. “These are the two main taxes that go to regional budgets. If we take into consideration that sanctions will have negative consequences in terms of revenues and tax revenues may be lower than expected, plus there are risks of unemployment and inflation, then it is necessary to discuss what can be changed. Perhaps we should adopt a one-year budget instead of a three-year one,” the Gaidar Institute economist suggested.
According to Ilya Sokolov, in addition to the ruble exchange rate and the budget rule, the government is concerned that Russia could face a significant drop in income tax and PIT revenues at the end of this year or early next year. “These are the two main taxes that go to regional budgets. If we take into consideration that sanctions will have negative consequences in terms of revenues and tax revenues may be lower than expected, plus there are risks of unemployment and inflation, then it is necessary to discuss what can be changed. Perhaps we should adopt a one-year budget instead of a three-year one,” the Gaidar Institute economist suggested.