Government spending in relation to GDP is systematically reduced
State Duma Speaker Vyacheslav Volodin and Prime Minister Mikhail Mishustin intend to work constructively on the country’s financial document. Photo by RIA Novosti
Emerging economies are now on the brink of a fiscal cliff, the Washington Institute for International Finance (IIF) warned. Unable to maintain stimulus measures, many of them will move in the next two years to fiscal consolidation, tightening financial conditions – and this in the context of the ongoing pandemic and social problems. The decision will be painful: according to IIF estimates, in the case of economies, a reduction in government spending by $ 1 of GDP reduces by 50 cents. The problem of the “cliff” may become urgent for Russia as well. After all, the Ministry of Finance will return to the “normal” operation of the budget rule and provide the budget with a surplus for several years. In relation to GDP, budget spending in Russia will be systematically cut.
On Thursday, the State Duma (Duma) is to consider in the first reading the draft budget for 2022-2024. The day before, the Prime Minister said that he forecasts for constructive work on the Programmed Budget, which will be used for the successful development of the country. “We will be ready to listen to all the questions that the deputy corps, representatives of factions have,” Mishustin said.
Speaker of the State Duma Viacheslav Volodin told the prime minister: “Through the budget, we are looking for an opportunity to help people in solving problems”. And he added that now, taking into account all the promises that were made before the choice, the deputies are full of energy in order to scrupulously study the main financial document of the country. “Most likely there will be a large number of proposals,” expects Volodin.
Meanwhile, as NG has already written (see issue dated 10/18/21), the main slogan of the new budget is “normalization,” which implies, in particular, a return to the “normal” work of the budget, or in other words, to the withdrawal of income from the economy. conditionally recognized additional to replenish reserves.
Moreover, the project assumes that the next two years the budget will be drawn up with a surplus, and in 2022 it will exceed 1 trillion rubles, making up about 1% of GDP. Moreover, this year the country is also forming a surplus: according to preliminary estimates of the Ministry of Finance, in January-September it amounted to more than 1.4 trillion rubles. after a deficit of 3.8% of GDP at the end of 2020.
It is obvious that the financial power is to limit budget expenditures, although at the same time there is a lot of talk about the growing – targeted support of the population, assistance to business.
The volume of federal budget expenditures in 2022 will amount to almost 23.7 trillion rubles. Compared to the previous year, it, as reported in the conclusion of the Accounts Chamber (JV), the project, “will decrease by 363.8 billion rubles. Or by 1.5%.” The Ministry of Finance itself, in the materials that explain the main parameters, gives slightly different data. “The volume of federal budget expenditures in 2022 will amount to 23,694.2 billion rubles. The increase compared to 2021 in nominal terms will amount to RUB 262.3 billion. (1.1%) “, says the manual entitled” Budget for Citizens. ”
In 2023, expenditures are planned at the level of 25.2 trillion rubles, which will be 6.5% higher than in nominal terms in 2022, the joint venture also reports. In 2024, federal budget expenditures will already be 26.4 trillion rubles, annual growth in nominal value – by 4.4%.
|Submitting the budget to the State Duma – an event
solemn. Photo from the site www.duma.gov.ru
For comparison: inflation for the current year will at least exceed 7%, as a maximum – it will approach 8%. Then, as expected, it should reach the annual level of 4%. At the same time, in relation to GDP, federal budget expenditures will decrease from 21% in 2020 to 16.5% in 2024, follows from the materials of the Accounts Chamber.
And this, if we exclude the extraordinary situation of 2020, is a long-term trend. So, a new version of the budget rule, which implies replenishment of reserves to the detriment of current funding, was introduced in the Russian Federation in 2017, and it worked in full force in 2019.
Budgetary “normalization” will take place in the context of tightening monetary policy of the regulator. The Central Bank (CB), however, insists: “We believe that the ongoing monetary policy will not interfere with balanced and sustainable economic growth, but it limits the risks of prolonged inflation deviation from the target.” This was announced on Wednesday by the Deputy Chairman of the Central Bank of the Russian Federation Alexei Zabotkin. He also clarified that due to sustainable growth in the second quarter ”.
However, there are risks that the double financial tightening – especially in the context of the ongoing pandemic – will still pay with economic growth. At least in the case of other medical economies, which are planning to curtail stimulus measures and move to fiscal consolidation in the next few years, foreign experts have declared a serious danger of an economic slowdown.
Thus, IIF experts indicated that a number of situations, after the fiscal support of the economy provided in the midst of the pandemic, will adjust their approaches in 2022–2023, tightening them. Moreover, in some cases, the cost reduction is even lower than the level that was before the pandemic. And as the researchers clarify, this will be a difficult political decision – perhaps at the last moment or at the initial stage of implementation, some countries will try to roll it back.
Fiscal consolidation will reduce debt risks. In fact, countries find themselves on the brink of a fiscal cliff. In some cases, the slowdown in economic growth may be more pronounced than with the fiscal adjustment triggered by the global financial crisis. The upcoming GDP growth in such countries may be lower than it was before the pandemic.
The next year is expected on average. “Cutting government spending by one reduces GDP by 50 cents,” the IIF also said. At the same time, much will depend on what kind of spending will be cut: let’s say, “wasteful” or helping the poor. In the second case, of course, it will immediately hit consumption. Recovery from the peak of the pandemic and in some cases accounts for the impact of fiscal adjustment, but in part, believes.
Judging by the published materials, in the IIF studies, primarily the countries of Latin America are considered, as well as South Africa, India, Turkey and a number of other states, Russia is not mentioned there.
Many people in the country do not have the resources (for example, in Turkey, Brazil) to further stimulate the resources of Russia, but the Welfare Fund is a “sacred cow,” explained Andrei Vernikov, head of department at Univer Capital. This will slow down inflation, including budget spending.
It is great that developing countries will drive the economy into recession in the second half of 2022 with such a budgetary and monetary policy, the expert admitted. He does not rule out a recession or at least zero dynamics in Russia as well – according to the results of the second half of 2022. Just when, according to the expert, the economy with a time lag will feel the echo of monetary tightening. Although, of course, I would like to be mistaken with such a forecast.
Meanwhile, as follows from the comments of the expert of the company “World of Investments” Dmitry Babin, at the stage when the growth of economies, which spend significant funds on the purchase of raw materials, will really slow down and when this leads to a fall in oil and gas prices, reserves will improve Russia.
However, if we take into account the global plans for the energy transition, their age will not be long. And then the question will arise.