FEDERAL BUDGET STILL IN VERY GOOD SHAPE.

Russia’s federal budget revenues continued strong through July, amounting to 17.5 percent of GDP for the first seven months of 2001. The preliminary estimate by the Finance Ministry for the first eight months puts total revenues for that period at the same share of GDP. Tax revenues in July represented 15.3 percent of GDP, the smallest share registered since January of this year. However, July is typically characterized by reduced levels of tax receipts. Tax receipts for the first seven months of 2001 represented 16.2 percent of GDP, which compares very favorably with the 14.0 percent registered for all of 2000.

Federal budget expenditures in July came in at 13.6 percent of GDP, identical to the figure for cumulative expenditures in January-July 2001. The cash surplus for the first seven months amounted to 189.1 billion rubles, or 3.9 percent of GDP. Given external debt service payments of 117.7 billion rubles (2.4 percent of GDP) and domestic ones of 24.9 billion rubles (0.5 percent of GDP), the primary surplus amounted to 331.8 billion rubles in the first seven months of this year. At 6.8 percent of GDP, the primary surplus also compares favorably with the 2000 result of 6.5 percent, despite the fact that federal budget expenditures accounted for a significantly higher share of GDP this year than in 2000 as tax revenues have surged.

Thanks to supplemental allocations from the federal budget surplus generated in the first half of the year, the rate of expenditure in the remaining months of 2001 can be expected to increase as long as the revenue picture remains rosy. As provided by Article 120 of the Federal Budget Law of 2001, 50 percent of the surplus generated in the first six months of the year is to be allocated for additional expenditures with a lag of one month. Thus, the Finance Ministry has made a preliminary estimate (based on financing rather than implementation) that expenditures surged to 18.2 percent of GDP in August 2001 compared with 13.6 percent for the first seven months of the year. The largest shares of the supplemental allocations of 38.1 billion rubles are to be devoted to salary increases for employees of organizations funded by the budget, including the military; for financial contributions to regional and local budgets; and for national defense. By far the lion’s share, 16.6 billion rubles will go toward budgetary salaries, while 6.1 billion is to be transferred to the regions, and 4.2 billion is to bolster national security (PlanEcon Report, September 2001).

INTERNATIONAL DEVELOPMENTS INCREASE UNCERTAINTY FOR RUSSIA’S BUDGET AND ECONOMY.