The changes introduced into the 2009 federal budget, which was adopted by the Federal Assembly and signed1 by President Medvedev on 29 April, represented the third consecutive alteration of the initial law2 signed on 24 November 2008. Last year, its introduction into the State Duma by the RF Government practically coincided with the onset of financial crisis in Russia and with the collapse of oil prices on the world market – the two developments which immediately made it clear that both the estimations forming the basis of the Government’s project and, accordingly, the draft budget itself were irrelevant.
As has already been noted3, the changes introduced into the Budget Code and entered into force from 2008 considerably reduced the non-classified part of the law on the federal budget. In particular, the current list of its annexes does not include the itemization of federal budget expenditure by sections and sub-sections pertaining to the functional classification4, which makes it impossible to analyze the budget with the help of the published law alone5.
Therefore, when analyzing the April changes of the budget, we also had to use the Federal Treasury’s report on the implementation of the RF consolidated budget in February 20096, the explanatory note of the RF Ministry of Finance concerning the draft alterations, and the conclusions of the relevant committees of the RF Federal Assembly and the RF Audit Chamber7. That was the only way to determine, with a delay of just 5 months, the whole structure of the expenditure side of the initial version of the law on the 2009 federal budget as well as the major indices of military expenditure in the April version of the federal budget8.
Thus, in accordance with the Conclusion of the Council of the Federation Committee on Defense and Security9, the initial allocations under Section 02, “National Defense”, were 1 For the introduction of alterations in the Federal Law “On the Federal Budget for the Year 2009 and for the Planning Period of 2010-2011”, see Federal Law No 76-FZ adopted by the RF State Duma on 15 April 2009.
2 For the federal budget for the year 2009 and for the planning period of 2010 – 2011, see Federal Law No 204-FZ adopted by the RF State Duma on 31 October 2008.
3 The economic and political situation in Russia. November 2008. Pp. 63-64.
4 For more details, see, for example, Annex 8 to the Federal Law “On the 2007 Federal Budget” (Federal Law No 238-FZ, adopted by the RF State Duma on 24 November 2006).
5 See the information on the website of the President of Russia http://document.kremlin.ru/DTL=7.
6 See the information on the website of the RF Federal Treasury: http://www.roskazna.ru/store/ reports_file410.xls.
7 See all these documents on the website of the RF State Duma among the materials concerning Draft Law No 181653-5: http://www.duma.gov.ru/faces/lawsearch/search.jsp.
8 Despite the mistakes contained in the Conclusions of the RF State Duma Committee on Defense (Decision No 47 / 1, of 02.04.2009) and the RF Council of the Federation Committee on Budget (Decision No 3.6-06 / 379, of 20.04.2009).
9 No 3 5-07 / 587, of 21.04.2009.
RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES reduced by 139 billion and 650.5 million rubles (or by 10.5 %) to 1,196 billion and 704.million rubles respectively, which will amount to 3.0 % of GDP.
By comparison with 2008, expenditure as a percentage of GDP grows by 0.5 %, which can be attributed, in the main, to the fall in GDP envisaged in the law on the budget. So far as the year-on growth in expenditure under this section is concerned, it is still impossible to determine its scope in real terms because of the rapid rise in prices observed in this country. However, judging from the trend observed over recent years, it is most likely that by comparison with last year (the nominal increase of 15 %) the growth of expenditure in real terms will be negligible.
As is noted in the Conclusion of the RF Audit Chamber, the more than 86 % of the almost 140 billion rubles cut from the budget allocations under Section 02, “National Defense”, accounts for the expenditure of the RF Ministry of Defense (125 billion rubles).
Allocations under Sub-Section 0201, “The Armed Forces of the Russian Federation”, are reduced by 77 billion and 449 million rubles. Allocations to the material support of the Armed Forces are reduced, on the whole, by 22 billion and 300 million rubles; it should be noted that the cuts in expenditures on petrol, oil and lubricants by 18 billion and million rubles will result, according to the RF Ministry of Defense, in the Armed Forces being able to purchase only 2.2 million tons of petrochemical products, including 1.0 million tons under the already placed contracts. With their estimated1 demand for petroleum products standing at 4.7 - 5.4 million tons, the RF Armed Forces will have to use part of their emergency reserves in order to cover the resulting deficit of approximately 50 %.
The further cutting of expenditures on the food supply of servicemen by 1 billion and million rubles will increase the deficit built into the budget from 20 % to 25 %.
With allocations to the supply of military clothing to servicemen being cut by 1 billion and 273 million rubles, the deficit existing in this sphere of the material support for servicemen will rise from 66 % to 71 % of the annual demand. As a result, the already dire situation with providing servicemen with customer-fit uniforms will further deteriorate, as well as that with the provision of bed accessories to them and with the purchasing of field uniforms for contractees. The altered budget still fails to satisfy the RF Ministry of Defense’s request for 2 billion and 270 million rubles to be spent on preparing the transition to a new uniform.
The situation with all the other expenditures on the upkeep of the RF Armed Forces will not improve, either: the allocations earmarked for the RF Ministry of Defense and designed to be spent on capital repairs of buildings and structures are cut almost by onethird (by 1 billion and 956 million rubles) of the initial volume, which covered just 20 % of the demand; the RF Military of Defense’s housing operating expenses and transport costs will be covered by 45 % and 86 % of the demand respectively.
According to the Audit Chamber, the state defense order of the RF Ministry of Defense is reduced by 36 billion and 500 million rubles. Only under Sub-section 0208, “Applied Research in the Sphere of National Defense”, budget allocations are cut by 11 billion and 256 million rubles, among other things by scrapping two hundred research and development projects in the amount of 7 billion and 700 million rubles, and by broadening and optimizing the rest of them. The other cuts in the state defense order were carried out in the following ways2:
1 The Conclusion concerning Draft Federal Law No 94777-5 “On the Federal Budget for the Year and for the Planning Period of 2010-2011”. Approved by the Committee on Defense’s Decision No 22 / 1 of 08.09. 2008. P. 7.
2 The Conclusion concerning Draft Federal Law No 181653-5 “On the Introduction of Changes in the Federal Law “On the Federal Budget for the Year 2009 and for the Planning Period of 2010-2011”. Approved by the Committee on Defense’s Decision No 47 / 1 of 02.04.2009. P. 7.
MILITARY EXPENDITURE IN THE 2009 FEDERAL BUDGET - by reducing the volumes of allocations to the delivery of spare parts, accessories and products for technical and production purposes, and other property, as well as the volumes of work aimed at maintaining the operability of the existing stock of arms and military equipment;
- by canceling the orders for the supply of arms and military equipment, which cannot be placed because the enterprises of the military defense complex are unable to begin production;
- by postponing the timelines for R & D and repair of less important arms and military equipment.
However, changes in the state defense order were not limited to cuts – on the whole, the power structures were allocated 12.5 billion rubles, to be spent on additional procurement of transport vehicles (the RF Ministry of Defense got 4 billion rubles). According to RF Prime Minister Putin, the main purpose of those allocations was “to support our national manufacturers”1.
The RF Ministry of Defense’s allocations for the implementation of federal target programs (FTPs) are cut by 33 billion rubles, including 15 billion and 986 million rubles being cut from the FTP “The improvement of the system of filling the positions of sergeants and privates with military servicemen switched over to military service under contract, and the implementation of switchover to filling the positions of sergeants (petty officers) of the Armed Forces of the Russian Federation and other troops, military formations and bodies, and also of sailors on the crews of the Navy by military servicemen conducting military service under contract (the years 2009 – 2015 )”, which amounted to a 61.5-percent reduction in its initially approved financing. The Presidential Program “The Elimination of Chemical Weapons Stocks in the Russian Federation” thus looses 7 billion and 573 million rubles in allocations, while the FTP “The Industrial Utilization of Arms and Military Equipment (the years 2005 - 2010)” is cut down by 2 billion and 404 million rubles; while allocations to the FTP “The Creation of a System of Bases for the Black Sea Fleet in the Territory of the Russian Federation in the years 2005 - 2020” are reduced by 1 billion and 600 million rubles.
At the same time, there were no cuts in the allocations earmarked for settlements with the personnel of the RF Ministry of Defense and for pension provision. Thus, the growth in allocations by comparison with last year, which is observed with regard to the targeted items of expenditure on the Ministry of Defense, entitled “Military Personnel” (by 35 %) and the Ministry “Pension Provision” (by 17 %), will ensure not only the covering of the one-time 7.5-percent increase of money allowances and pensions planned for August 2009, but also to fully compensate servicemen and military pensioners for the current year’s rise in consumer prices, provided there is a corresponding political will on the part of the authorities. A more significant growth in allocations under the “Military Personnel” item of expenditure is explained by the introduction, from the year 2009 onwards, of a system of cash bonuses to be paid to approximately 10 % of the officers of the Armed Forces. It should be noted that RF Prime Minister Putin has voiced the Government’s intention to extend such payments, representing a new system of money allowance, to all the servicemen of the Armed Forces as early as by the year 20122.
On the other hand, the repeated affirmations of the officials from every branch of state authority, including the RF Audit Chamber, that the RF Ministry of Defense’s social expenditures will not be subject to cuts should be seen as wishful thinking rather than as 1 Stenogrammy zasedanii Gosudarstvennoi Dumy. Stenogramma zasedaniia 6 aprelia 2009 g., No (1057). (Minutes of State Duma sessions. Minutes of the session on 6 April 2009, No 84 (1057)). See http:// wbase.duma.gov.ru/steno/nph-sdb.exe.
2 See ibid.
RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES anything else. It is not very clear how the military social sphere could be immune to the ongoing economizing on catering and clothing the servicemen, as well as on the lighting, heating and repairing of military camps. Maybe it would be better for the RF Ministry of Defense to economize on the development and the subsequent advertising of its own strategy of social development until the year 2020, if its officials are so accustomed to their own social sphere being permanently underfinanced.
In this connection, much hope is being pinned on V. Chistova’s transfer, in April, from the Ministry of Finance to RF Ministry of Defense, after having been appointed Deputy Minister of Defense for financial and economic issues. In recent years V. Chistova always bested all the financial bigwigs of Russia’s military department, which is proved by the very size of the aforesaid deficits in the military economy of this country. We hope that things will start moving immediately, that the State Duma Committee on Defense’ Conclusion (expected in September) concerning the 2010 draft federal budget will no longer contain the habitual complaints about the most urgent needs of military men being underfinanced, and that the general public’s deeply rooted perception of the Russian soldier as a hungry ragamuffin will begin to disappear.
Our analysis of the structure of the 2009 federal budget’s allocations at the level of sections and subsections of its expenditure classification indicates that, despite the 667.billion ruble rise in overall budget expenditure, the classified expenditures in the April version of the budget have been unexpectedly cut by 99 billion and 210 million rubles, of which only 36 billion and 500 million rubles could be associated with the cuts in the RF Ministry of Defense’s state defense order. The question of where the Government managed to find the remaining 62 billion and 710 million “classified” rubles cannot be answered at the present moment. Nevertheless, by comparing the shares of classified allocations in the initial version of the federal budget (Table 1) with the available data from the April version (on the whole, the share of classified allocations in the federal budget’s expenditure has declined from 11.99 % to 10.14 %), one can make an assumption that in conditions of the current economic crisis the urgency of classified allocations has significantly dwindled.