The draft Russian budget caused bewilderment at the Accounts Chamber

Inflation and exchange rate forecasts look strange

The draft Russian budget for the next three years has caused bewilderment in the Accounts Chamber, to put it mildly. The supervisory organization has a lot of comments on the country’s main financial document. In particular, its auditors point out the incomparability of two macro forecasts – those of the Central Bank and the Ministry of Economic Development, on which, in fact, the project is based. In addition, the Accounts Chamber does not fully understand how expenses in the amount of 36.7 trillion rubles will be covered in 2024.

The 2024 budget differs from its predecessors by a sharp increase in both expenses and revenues – by 22% and 16%, respectively. The priorities are clearly defined: defense allocations will be increased by 1.68 times. At the same time, the federal treasury deficit is planned at an acceptable level of 0.9% of GDP. This is the statistical basis of the new document, what lies on the surface. Having analyzed it, the Accounts Chamber dug deep and in the intricacy of details identified a number of oddities and inconsistencies. Presenting the conclusion of the joint venture at a meeting of the State Duma budget committee, the acting head of the Accounts Chamber, Galina Izotova, called the increase in revenues planned by the Ministry of Finance unprecedented and expenses significant.

State auditors are also alarmed by the outright discrepancy in the forecast calculations of three key departments – the Central Bank, the Ministry of Economic Development and the Ministry of Finance, recorded in the project. The Central Bank assesses the current economic situation more pessimistically, in addition, it proposes a tighter monetary policy to curb inflation. The Central Bank assumes that in 2024 GDP will grow in the range of 0.5-1.5%, and the Ministry of Economy gives a categorical figure of 2.3%. In addition, the Accounts Chamber points out the “risks of not achieving” the oil cut-off price of $60 per barrel announced by the Ministry of Finance (in the budget rule): the price of the Russian Urals grade fell below this threshold in 2015-2017 and in 2020. Another alarming point: according to the calculations of the joint venture, in the next three years the budget risks losing 335 billion rubles due to a decrease in revenues from the value added tax (VAT) and tobacco excise tax.

“Questions regarding budget execution have been raised before,” recalls financial analyst Fedor Sidorov. “Radical measures were proposed, such as cutting expenditures by 10% and introducing some kind of analogue of the “Chinese membrane” for foreign exchange payments. All this, coupled with tightening monetary policy and the obligation for exporters to repatriate foreign exchange earnings, casts doubt on the feasibility of the project.”

One of the sources of problems seems to be VAT on goods and services sold in Russia. The fact is that the budget was compiled based on the collection rate of this tax at the level of 98.7%; in reality, the figure is much lower. Added to this are difficulties with excise taxes on tobacco products, and increased costs for the military-industrial complex. Of course, Sidorov argues, our country has a fairly large margin of safety in terms of public debt: its size to GDP is only 15.1%. Due to this, some of the negative consequences can be compensated. But in any case, the Accounts Chamber’s claims seem justified.

“In its conclusion, the Accounts Chamber raises serious professional questions that remain unanswered,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – The supervisory agency is based on the obvious fact: GDP forecasts for 2024 from the Central Bank and the Ministry of Economic Development differ (at the upper limit) by 0.8%, which is quite a lot.

But the main thing to which all the theses of the joint venture can be boiled down is: is the three-year budget capable of ensuring a structural transformation of the economy, without which we will not see sustainable growth? The Accounts Chamber strongly doubts this. Its auditors do not understand how realistic the project’s 2024 inflation (4.5%) and exchange rate (90.1 rubles per dollar) forecasts are. By the way, the State Duma Budget Committee very carefully called these estimates optimistic.”

The planned increase in spending in 2024 by actually 5 trillion rubles compared to 2023 will create additional inflationary pressure.

Another major risk to the economy remains the tightness of monetary policy. Maslennikov cites information from Deputy Minister of Finance Vladimir Kolychev: budget expenses for servicing the public debt and financing preferential lending programs when the Central Bank interest rate increases by 1 percentage point increase by approximately 200 billion rubles. In a word, MK’s interlocutor summarizes, the Accounts Chamber has done extremely important work: it has identified the main set of risks that the Russian treasury is unlikely to be able to avoid.