Yelena Ivanova, Natalia Seibil
The Accounts Chamber has published a report on the execution of the federal budget for 9 months. The fact that the budget would be in deficit became clear already in April. The question was posed differently: what will the deficit be? Three quarters later, the order of the numbers looms: the country is expected to close the year with a minus of 4.5% of GDP. The "hole" in the budget will amount to about five trillion rubles. In late spring, economists wondered what measures the Ministry of Finance would take to cover the deficit. There were three ways - sequestration, new borrowing or money-box - the National Welfare Fund. The authorities chose a combination of cutting all unprotected budget items and placing government bonds. The NWF remained intact.
Ministry of Finance and borrowing
The government took the path of increasing the state debt. For three October sessions, the Ministry of Finance has placed government bonds for 1 trillion rubles. By the end of the year, the authorities will sell OFZ for another 1 trillion. Money in the domestic market is getting more expensive, now the discount to the rates of the secondary market is already half a percent. In the draft budget until 2023, 1.6 trillion rubles are included in the item of expenditures for managing the public debt. Therefore, the Finance Ministry announced plans to enter international borrowing markets. But there another danger lies in wait for Russia.
It remains unclear how the new American administration will behave towards Russia. Democrats, in spite of the Republicans, submitted several bills to Congress at once. They relate to a complete ban on non-residents from working even with new issues of government bonds of the Russian Federation. Nikita Maslennikov, Head of Finance and Economics at the Institute of Contemporary Development, says:
- Of course, the US Treasury is against this, because of the 30% share of non-residents in the Russian debt market, exactly one third of this third belongs to the Americans. These are serious volumes that damage US financial institutions. Our Ministry of Finance is pushing all these issues forward in order to borrow under those old conditions. If sanctions pressure begins now, the market will have to pay a large premium.
There is an assumption in the market that all these bills and pressure on the market in order to force the Ministry of Finance to pay for the placement. In calm times, this would be common, but during a pandemic, this pressure coincided with a deteriorating market environment and a decline in bank liquidity. There is another purely Russian problem: the Ministry of Finance takes money from the market, which means that it takes it out of the economy. OFZ is a choice between development and social stability. The government sells bonds and finances pensions and social spending. There is no money left for development.
Russian banks should not only participate in the placement and buy OFZs, but also support the economy. This requires additional resources. The Central Bank increases the money supply, but this does not mean that the printing press has turned on and inflation is accelerating. Often, liquidity transactions do not require an issue.
But banks, especially state ones, playing in two glades, hope that if the situation worsens, the state will lend them a mighty shoulder.
Budget spending and sequestration
The Audit Chamber's report shows an ambiguous picture of government spending. The reason for this lies in the pandemic. For 9 months more than a third of the articles were changed. The total amount of changes to the original appointments amounted to 8.5 trillion rubles. The money was redistributed in favor of the coronavirus measures. Medicine and social support show a higher rate of cash execution of government spending. For 9 months, tasks on social policy were fulfilled by 82% , housing and communal services - 73.5% , health care - by 71% . Last year, these figures were 7-8 percent lower.
For the 4th quarter, you need to spend 9 trillion rubles. The Accounts Chamber speaks frankly - they will not be in time. The main recipients - ministries - are not ready to receive them.
Budget overhang and growth rates
The budget overhang, or funds that are transferred to next year, is not a new topic for Russia. It does not matter whether Russia takes over the markets or receives flows of petrodollars, ministries and departments cannot propose projects, do not know how to plan budgets, or spend them extremely inefficiently. This is an old problem in the Russian economy and an indicator that the state is a very bad manager. Last year 1 trillion rubles flowed into the new budget. This year, experts expect the budget overhang to double. For the budget of the next year, these funds work in a plus, but this year there will be no budgetary impulse for the economy to reach higher growth rates. Therefore, the Central Bank predicts that the growth rate of the economy in the 4th quarter will be zero.
The government does not openly speak about this, but in fact the budget is being cut.
- The government is actually sequestering the budget - unprotected items have been cut by 10%, everything, except for social services, is being cut, including the program for state armaments. The sequestration is underway. For 4 years, the volume of expenses has been reduced. Now there will be a budget deficit, by 2023 they will reach the level of half a percent, this is normal, it can be said that the budget is balanced. Nevertheless, now this is the situation, says Nikita Maslennikov.
The government is extremely reluctant to talk about sequestration, preferring softer expressions that do not frighten society. But the reason is simple - there is not enough money, says economist Igor Nikolayev:
- The current situation demanded a significant amount of funds directly to combat the pandemic, respectively, budgetary expenditures are more difficult to finance, especially given that our revenues, primarily the revenues of the oil and gas sector, have significantly decreased, by tens of percent from oil and gas exports. Therefore, this is a forced measure, to sequester the budget, and a natural one. There is no money - that's why they sequester.
Additional resources that will fall into next year's budget are not bad. The only question is that no one knows how much and on what they will be spent. The Central Bank, seeing the airbag, will not rush to the refinancing rate either. Most likely, it will not be raised long enough, and the maneuver is not great - only half a percent. That is, there is no need to talk about a monetary stimulus for the economy next year either.
The assessments of the Accounts Chamber on the implementation of national projects have not changed. What for 9 months, what for 10 months the numbers stand. The question arises - have national projects been financed since September?
If you look at what is happening with their execution, the picture is similar to budget execution. In demography and medicine, especially in support of small business, health care development and housing, the indicators are good: health care - 69%, housing - 65%.
The situation is different with future-oriented projects. For the digital national project, the implementation in 9 months slightly exceeds 20 percent , for state purchases - 11% in general.
- This all raises the question, what is actually happening with digitalization - getting rid of childish enthusiasm, optimism that was under the Medvedev government? More realistic assessment or some kind of sharp braking? How is it explained? So far, there are no answers to these questions, because the government has not yet presented the results of the reassembly of national projects, how many, where, how. All this is still at the level of promises, - says Nikita Maslennikov.
Igor Nikolayev reminds that preventively, without delving into the substantive part, in the summer the government extended the term for the execution of national projects by 5 years at once:
- As you know, in July a decree was issued, which defined national goals not until 2024, but until 2030. Strongly insured. Now, only in ten years, it is planned to achieve growth rates higher than the world ones, and other indicators have been shifted there. Anything can happen in ten years, especially a change in the list, structure, content of national projects. We will not be surprised here.
World prospects and the Russian budget
The Ministry of Economic Development, not noticing the second wave of the pandemic, does not change the forecast for 2021 and 2022. The ministry forecasts growth of 3.3% and 3.4%, respectively. Indeed, the fall in the Russian economy in the first half of 2020 was less than in the United States or Western Europe. Economist Nikolaev explains this by the different structure of the economy:
- In the spring lockdown, first of all, catering, tourism, cultural enterprises were closed. Therefore, in Western European countries, the service economy, which was closed, fell heavily and pulled the entire economy. We have a small share of this sector, and no one closed the fuel and energy sector. It is these structural features that predetermined that we fell less, but this structural feature gives an advantage during the period of decline, the closure of the economy. And when economies begin to recover, those where the service sector is more developed will recover much faster.
At the first stage of the crisis, the Russian economy falls less, but the recovery takes longer and more painful. In the meantime, month after month, the International Monetary Fund has been lowering its forecasts for how the situation in the world will develop in 2021. One thing is clear - growth rates will be lower than those predicted in the summer. The Bank for International Settlements, the bank of the countries' central banks, has released a report entitled "What's Next". In the pessimistic scenario, the leading economies of the world - the United States, Europe and Japan - will reach pre-crisis indicators in 2025. According to the average case, this will take place in mid-2022 - early 2023. And only the optimistic scenario insists on 2021, provided that the pandemic stops, and the financial and economic situation reads recovery.
- While it is not realistic. Naturally, the Ministry of Finance is forced to keep the NWF as an argument, the last resource, the last airbag, because it is not known how oil prices will be, but they will clearly be below forecasts.
Therefore, the government chooses stability, and development shifts to an indefinite future. Experts are confident that the next year will be extremely difficult, and many plans will not be fulfilled.