New Federal Budget: Deficit but Balanced
The State Duma of the Russian Federation has adopted the federal budget for 2023 and for the planning period of 2024 and 2025. The main financial document of the country was commented on by the Chief Researcher of the Institute of Economics of the Russian Academy of Sciences, Doctor of Economic Sciences Igor Nikolaev.
The budget is about 5 thousand pages of text. Can you summarize in a nutshell the main characteristics of this document for the readers of Capital Ideas?
The federal budget adopted for 2023 is in deficit. That is, expenses will exceed income. Spending on national defense and national security will grow significantly, while social spending remains at a fairly high level. So, literally in a few words, this is how to characterize the budget adopted.
Adopting a budget is a routine task – but these are special, difficult times. How is the current budget different from the previous one?
The briefest description of the budget, which I have already given, indeed reflects the specifics of the time that we are experiencing today. The most important feature of the budget is how its revenues and expenses are correlated. And this applies to budgets at all levels, not just the federal one. At the household level, this is also relevant. Imagine that in your family budget, expenses exceed the available income. You have to agree that this will greatly concern you.
The adopted law “On the Federal Budget for 2023 and for the Planning Period of 2024 and 2025” provides that revenues in 2023 will amount to a little more than 26.1 trillion rubles, and expenses to 29.1 trillion rubles. That is, the budget deficit – the excess of expenditures over revenues – will amount to almost 3 trillion rubles. As a percentage of GDP, it will be about 2%. That’s a lot. This – a large deficit – is the main difference between the federal budget for 2023 and the budgets of recent years. The country has gotten out of the habit of living with such a deficit. The problem of balancing the budget will remain very relevant. In fact, the adopted law on the budget provides for the deficit continuing in 2024 (1.4% of GDP) and in 2025 (0.7% of GDP).
What measures does the budget envisage to counter sanctions pressure on Russia and ensure its technological sovereignty?
Sanctions are primarily financial restrictions that can lead to a decrease in revenues, which is very painful. But if it is possible to balance the budget, to ensure the sustainability of planned expenditures, then this will mean that the economy will remain operational even in the face of unprecedented external restrictions. The question is: what does it mean to balance the budget? The balance of the budget is not necessarily the equality of income and expenditures. “Balanced” is when, even with a highly deficit budget where expenses significantly exceed income, you find resources to cover these expenses. So, the budget adopted is balanced in this sense. This, by the way, is also one of the conditions for ensuring technological sovereignty.
Where will the funds for the fulfillment of the budget come from, given that about $300 billion of Russian assets have been frozen in the West, and according to media reports, billions more are now being withdrawn abroad?
Here it is, the main question: “Where is the money, Zin?” (This line from the famous song of the bard Vladimir Vysotsky has long been a catchphrase in Russia. – ed.). Well, a little less than 3 trillion rubles must be found somewhere to balance budget revenues and expenditures.
The state proceeds from the fact that state borrowing will help to solve this problem. By and large, this will be borrowing in the domestic market, through the market of federal loan bonds (OFZ). Foreign markets are closed to Russia today.
There is, of course, the National Welfare Fund (NWF) – but for obvious reasons, they will try not to spend much from it, although they will have to do this as well. Let me remind you that as of November 1, 2022, the NWF had assets worth 11.4 trillion rubles (184.8 billion US dollars). In reality, its liquid part is about two times less. Firstly, this is because part of the funds have already been invested in various projects. Secondly, an important issue that should not be forgotten, the freezing mentioned of Russian assets totalling about 300 billion US dollars – also affected the NWF. The fact is that a portion of the NWF’s funds fills two roles: on the one hand, it is the Fund’s money, while on the other hand, it also makes up a part of Russia’s international reserves. So this too needs to be taken into account.
Has Russia’s defense budget for 2023 been increased, taking into account the special operation in Ukraine? Or is its publicly-open part comparable to the 2022 budget?
Federal budget expenditures under both the “National Defense” section and the “National Security and Law Enforcement” section have been significantly increased. That this would be the case was already clear when the draft budget was introduced. How significantly the budget for these items will increase in 2023, compared to the outgoing year, will become clear when the financial results of 2022 are summarized.
The “man on the street” is primarily interested in the articles related to the fulfillment of social obligations by the state. How will the adopted budget make him happy in this regard?
Many items of the federal budget adopted for 2023 provide for an increase in social spending. Thus, 2.5 billion rubles will be allocated in 2023 for the organization of vocational training and additional vocational education, 1.4 billion rubles for talented schoolchildren of grades 8-11 to take a two-year course of training in modern programming languages, 450 million rubles for a program for the development of youth entrepreneurship, 250 million rubles for the training of participants in student teams in blue-collar professions, etc. And here is another thing that should not be ignored: 9 million rubles will be allocated to two NGOs for the training of guide dogs for the visually impaired. So the budget adopted really has something to make people happy. Still, let’s not forget where I started: it’s a significantly deficit budget that will not be easy to live by.