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INSTITUTE FOR THE ECONOMY IN TRANSITION RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES May 2002 MONTHLY BULLETIN Moscow 2002 Institute for the Economy in Transition, 1996. Licence, 02079 19 2000 .

5 Gazetny pereulok, Moscow 103918, Russian Federation Phone: (095) 203-88-16 Fax: (095) 202-42-24 E- Mail: todorov@iet.ru 1 2 The State of the Federal Budget TABLE 1 The monthly execution of the federal budget of the Russian Federation (in % of GDP, in comparable prices).

I`01 II`01 III`01 XII`01 I`02 II`02 III`02 Revenues Corporate profit tax 1,4% 1,5% 1,9% 2,4% 1,4% 1,4% 1,5% Personal income tax 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% VAT, special tax and excises 0,0% 0,0% 0,0% 0,0% 4,9% 4,4% 4,0% Tax on foreign trade and foreign trade operations 9,0% 9,2% 9,0% 9,4% 9,3% 9,1% 9,3% Other taxes, duties and payments 6,7% 6,8% 6,7% 7,1% 6,9% 6,4% 6,8% Total- taxes and charges 2,3% 2,4% 2,3% 2,2% 2,4% 2,6% 2,5% Non- tax revenues 3,6% 4,1% 4,1% 3,7% 3,2% 3,3% 3,2% Revenues, total 1,1% 0,9% 0,8% 0,6% 9,7% 9,1% 8,7% Expenditure 15,2% 15,7% 15,7% 16,2% 20,4% 19,6% 19,6% Public administration 1,0% 1,1% 1,1% 1,4% 2,1% 1,6% 1,4% National defense 16,2% 16,9% 16,9% 17,6% 22,4% 21,2% 20,9% International activities Judicial power 0,1% 0,2% 0,3% 0,5% 0,1% 0,2% 0,3% Law enforcement and security activities 1,3% 2,0% 2,2% 2,7% 1,0% 1,5% 1,9% Fundamental research 0,3% 0,3% 0,2% 0,3% 0,4% 0,4% 0,4% Services provided for the national economy 0,0% 0,1% 0,1% 0,1% 0,0% 0,1% 0,1% Social services 0,7% 1,1% 1,3% 1,6% 0,6% 0,9% 1,0% Servicing of public debt 0,0% 0,1% 0,2% 0,3% 0,0% 0,1% 0,2% Other expenditure 0,1% 0,3% 0,6% 1,3% 0,1% 0,3% 0,4% Expenditure, total 1,3% 1,6% 1,9% 2,3% 3,7% 4,8% 4,8% Loans, redemption exclusive 3,2% 5,5% 4,7% 2,6% 2,0% 3,4% 3,4% Expenditure and loans, redemption exclusive 3,3% 3,1% 2,9% 3,0% 2,9% 3,3% 3,6% Budget deficit (-) 10,4% 14,4% 14,2% 14,7% 10,9% 15,0% 16,1% Domestic financing 5,8% 2,5% 2,6% 2,9% 11,5% 6,2% 4,8% Other taxes, duties and payments -3,7% -0,8% -0,6% -0,1% -11,2% -4,6% -2,7% Total- taxes and charges -2,1% -1,7% -2,1% -2,8% -0,4% -1,6% -2,1% Non- tax revenues -5,8% -2,5% -2,6% -2,9% -11,5% -6,2% -4,8% * in % of GDP; ** Single Social Tax (SST) is included in tax revenues TABLE The monthly execution of the federal budget of the Russian Federation (in % GDP, actual financing) I`01 II`01 III`01 IV`01 XII`01 I`02 II`02 III`02 IV`Total 16,2% 16,9% 16,9% 17,5% 17,6% 22,2% 21,0% 20,9% 21,3% Public administration 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% National defense 2,4% 2,5% 2,8% 2,8% 2,9% 1,7% 2,4% 2,4% 2,7% International activities 0,5% 0,4% 0,2% 0,2% 0,3% 0,4% 0,2% 0,3% 0,5% Judicial power 0,2% 0,2% 0,1% 0,1% 0,1% 0,2% 0,2% 0,2% 0,2% Law enforcement and security 1,7% 2,0% 1,9% 1,8% 1,7% 1,6% 1,4% 1,4% 1,5% activities Fundamental research 0,3% 0,3% 0,3% 0,3% 0,3% 0,3% 0,3% 0,2% 0,3% Services provided for the national 0,5% 0,9% 1,0% 1,0% 1,4% 0,3% 0,6% 0,8% 0,9% economy Social services 2,4% 2,6% 2,5% 2,7% 2,3% 5,0% 5,7% 5,3% 5,9% Servicing of public debt Other expenditure 3,2% 5,5% 4,7% 4,3% 2,6% 1,9% 3,4% 3,5% 2,7% Total expenditure 3,7% 3,5% 3,2% 2,5% 3,0% 3,5% 4,0% 4,0% 4,0% Proficit (+) / deficit (-) 15,3% 18,3% 17,2% 16,4% 15,0% 15,5% 18,7% 18,6% 19,2% Total 0,9% -1,4% -0,3% 1,1% 2,6% 6,8% 2,3% 2,4% 2,1% The data on the execution of the federal budget in the first quarter of 2002 are presented in Table 11. As of April 1, 2002, the revenues of the federal budget accounted for 20.9 % of GDP, including tax revenues at 19.6 %, while expenditures made 16.1 % of GDP (18.6 % of GDP in terms of fulfilled Because of the estimated data on GDP, the indices may be subject to revision.

funding2), including non-interest ones 12.7 % of GDP (15.1 % of GDP in terms of fulfilled funding).

The level of budget surplus accounted for 4.8 % of GDP (2.4 % of GDP in terms of fulfilled funding).

The indicators of revenues collected in the first quarter of 2002 somewhat declined as compared to the figures registered in January and February, however. The tax revenues in January through March of 2002 made 15.6 % of GDP (without the single social tax).

A certain increase in VAT collection in the first quarter of 2002 as compared with the indicators registered in the last year (6.8 % of GDP in 2002 and 6.7 % of GDP in 2001) shall be noted, at the same time, there was registered a certain increase in excises (2.5 % of GDP in 2002 and 2.3 % of GDP in 2001), while taxes levied on foreign trade significantly declined (3.2 % of GDP in 2002 and 4.1 % of GDP in 2001).

The expenditures for the servicing of the public debt in the first quarter of 2002 made 3.4 % of GDP (significantly below 4.7 % observed in 2001). As concerns other expenditures of the federal budget, it shall be noted that in March the expenditures for national defense increased, and therefore the gap between the figures registered in the first quarter and the indicators of the preceding year narrowed (1.9 % of GDP in 2002 and 2.2 % of GDP in 2001). In the structure of social expenditures, the Pension Funds subsidies for base labor pensions at the expense of the single social tax (SST) made 2.7 % of GDP, while PF subsidies for pensions of the military and law enforcement officers made 0.5 % of GDP.

As concerns the fulfilled funding, the expenditures in the first four months of 2002 made 19.2 %, what by 2.8 p. p. of GDP exceeds the expenditures in the preceding year. Without taking into account the financing of PF subsidies at the expense of SST, the expenditures of the federal budget made 16.% of GDP, what is even below the level of the preceding year.

As of end April, the balances of accounts on accounting the federal budget funds (without regard to the funds accumulated on personal accounts of recipients of budget funds) grew up by Rb. 67 bln. (2.% of GDP) in terms of cash execution of the budget and by Rb. 10 bln. (0.3 % of GDP) in terms of the fulfilled execution of the budget.

TABLE Actual tax revenues to the federal budget, according to the data of the MTC (in % of the data for January of 1999)* I II III IV V VI VII VIII IX X XI XII 100,0% 115,1% 122,0% 122,1% 104,5% 112,9% 127,0% 127,5% 124,3% 141,4% 160,8% 213,1% I II III IV V VI VII VIII IX X XI XII 149,3% 160,5% 181,3% 205,8% 233,1% 186,9% 181,0% 186,4% 173,1% 181,1% 201,7% 254,1% I II III IV V VI VII VIII IX X XI XII 204,4% 198,4% 227,6% 267,5% 252,2% 233,3% 231,9% 235,6% 219,4% 237,5% 247,3% 360,6% I II III IV 218,7% 187,1% 234,8% 277,5% * It was decided to choose January of 1999 as the benchmark in order to render the comparison more reliable. January of 1999 is not a remarkable date in terms of tax revenues.

The level of tax revenues of the federal budget in April of 2002 (without SST) in comparable prices was a most significant over the last three years.

The dynamics of actual tax debts to the federal budget is presented in Figure 1 (Since 2001 the form of the MTCs presentation of the respective statistical data has been changed, and the data on debts to the federal budget across all the taxes are no longer available. Since January of 2002 the practice of balancing the data on the arrears against the amount of tax surplus has been ceased. In this relation the figure presents the data on the gross unbalanced tax arrears for comparability purposes). In April, there The execution of the budget in terms of fulfilled (actual) financing is equal to the sum of the funds transferred to managers of budget funds, while the cash execution of the budget is equal to the sum of funds spent by managers of funds (i.e. without account of funds remained on their accounts).

was registered an increase in tax revenue arrears of the federal budget, relating to both profit tax and VAT.

Figure 1. Rate of growth of the real tax arrears to the federal budget (in % to July 1999) 200% 180% Profit tax VAT 160% 140% 120% 100% 80% TABLE Execution of the RF consolidated budget (in % of GDP).

I II III IV V VI VII VIII IX X XI XII Taxes 16,2% 17,4% 18,1% 19,3% 19,7% 19,8% 19,8% 19,4% 18,8% 18,5% 18,6% 19,6% Revenues 18,8% 20,1% 21,2% 22,4% 23,0% 23,2% 23,2% 22,9% 22,3% 22,0% 22,0% 24,5% Expenditures 25,3% 23,8% 27,0% 28,1% 28,6% 29,5% 29,4% 28,6% 27,4% 26,9% 27,1% 29,5% Deficit -6,5% -3,7% -5,8% -5,7% -5,7% -6,3% -6,2% -5,7% -5,2% -5,0% -5,0% -5,1% I II III IV V VI VII VIII IX X XI XII Taxes 16,8% 16,6% 18,1% 19,9% 20,1% 20,5% 20,8% 20,8% 20,3% 20,2% 20,9% 22,1% Revenues 19,2% 18,9% 20,6% 22,7% 23,2% 23,9% 24,3% 24,5% 24,1% 24,0% 24,8% 26,3% Expenditures 18,6% 20,3% 23,6% 25,6% 26,6% 27,3% 27,4% 27,4% 26,7% 26,3% 26,7% 29,2% Deficit 0,6% -1,5% -3,1% -3,0% -3,4% -3,4% -3,1% -2,9% -2,7% -2,3% -1,9% -2,9% I II III IV V VI VII VIII I X XI XII Taxes 20,8% 21,4% 22,6% 24,2% 25,5% 25,4% 24,9% 24,8% 24,1% 23,7% 24,0% 24,6% Revenues 24,4% 24,8% 26,4% 28,2% 29,7% 29,7% 29,3% 29,2% 28,4% 28,0% 28,6% 30,0% Expenditures 19,6% 21,1% 23,8% 24,8% 25,2% 25,5% 22,3% 25,1% 24,5% 24,2% 24,6% 27,0% Deficit 4,7% 3,7% 2,6% 3,4% 4,5% 4,3% 7,0% 4,1% 3,9% 3,8% 4,0% 3,0% I II III IV V VI VII VIII I XI XII Taxes 22,7% 23,6% 23,9% 25,4% 26,4% 26,0% 26,1% 25,9% 25,0% 24,8% 25,4% 27,1% Revenues 25,9% 27,1% 27,4% 29,3% 30,5% 29,8% 29,9% 29,7% 28,3% 28,2% 28,8% 29,5% Expenditures 16,8% 22,8% 23,7% 24,7% 25,1% 25,3% 25,5% 25,6% 24,9% 24,7% 25,0% 25,6% Deficit 9,1% 4,2% 3,7% 4,7% 5,4% 4,4% 4,4% 4,1% 3,5% 3,5% 3,8% 3,9% I II III Taxes 28,7% 23,6% 24,3% Revenues 32,9% 31,3% 31,4% Expenditures 18,3% 23,7% 26,0% Deficit 14,6% 7,7% 5,4% * without SST The level of tax revenues of the consolidated budget in the first quarter of 2002 somewhat increased in comparison to two-month indicators. Besides, the surplus of the consolidated budget still exceeds the level observed in the preceding year, although it declined in comparison with levels of preceding months.

June July August September October November December January February March April May June July August September October November December January February March April May June July August September October November December January The estimate of tax revenues of the consolidated and federal budgets is presented in the table3. The estimate was revised as compared to the indicators presented in the preceding bulletin basing on the new data on the execution of the consolidated and federal budgets.

S. Batkibekov Monetary Policy In April 2002 the consumer price index grew by 1.2%. Thus, the inflation rate remained about 1.1 1.2% per month (1415% annualised) during the third month in a row. The commodity structure of consumer price growth was the following: food stuffs 1.0%, non-food products 0,8%, services 2,4%. Prices for fruit and vegetables (+6.4%), housing and house facilities (+3.6%), health and recreation (+3.2%) and infant education (+3.6%) were those that demonstrated the highest growth rates. It is evident that a part of the price increment was related to seasonal factors.

In May the average weekly inflation rates did not changed (see Fig. 1) and, according to preliminary estimates, in the month the CPI grew by about 1.3%.

FIGURE 1.

Consumer Price Index in 2001 and 1,1% 0,9% 0,7% 0,5% 0,3% 0,1% -0,1% The rise of the CBRs foreign reserves that started in April increased its growth in May (see Fig. 2).

On the whole, since early March 2002 the reserves of the Bank of Russia increased by $5.5 billion (15.2%), including about $2.5 billion in May. Therefore, by early June they reached the level of $41.7 billion. The latter is the highest value for the period of observation.

At the same time, the growth of money supply was rather modest (see Fig. 2). Namely, after the first three weeks of May the narrow monetary base even squeezed (by 0.4%). Evidently, the Russian Central Bank sterilised its interventions in the forex market (most likely, through attracting liquidity to deposits), however, available by now data (including, lack of information on dynamics and structure of reserve money) do not allow to analyse the operations in details.

For the description of models see the preceding bulletins.

% a week 1-7.1.8-14.4.5-11.3.7-13.5.9-15.7.1-7.10.3-9.12.4-10.2.22-28.1.12-18.2.16-22.4.18-24.6.20-26.8.10-16.9.18-24.3.26.3-1.4.28.5-3.6.30.7-5.8.25.2-3.3.29.4-5.5.22-28.10.12-18.11.24-30.12.14-20.01.FIGURE 2.

Dynamics of Monetary Base and Foreign Reserves of the RCB in the second half of 2001 and 750 42,41,Monetary Base (bln. rub.) Foreign Reserves (bln. doll.) 41,40,40,39,39,670 38,38,37,37,36,36,35,590 35,The structure of reserve money in late-2001 and early-2002 was stable. The share of cash grew up to 6065%, while non-borrowed reserves (balances on correspondent and deposit accounts of commercial banks in the Bank of Russia) did not exceed 2325% of the reserve money. Therefore, the structure of monetary base was similar to the one observed in 1997, at the time of the most developed financial market and maximum utilisation of financial resources by banks.

FIGURE 3.

Reserve money structure 100% 90% 80% 70% 60% Banks deposits and other liabilities 50% Banks reserves 40% Required reserves 30% 20% Cash 10% 0% March June 2000 September December March June 2001 September December March 2000 2000 2000 2001 2001 2001 S. Drobyshevsky.

bln. dollars bln. rubles 2-8.7.8-14.4.3-9.12.6-12.5.16-22.7.13-19.8.10-16.9.24-30.9.8-14.10.5-11.11.11-17.2.11-17.3.25-31.3.22-28.4.20-26.5.30.7-5.8.27.8-2.9.25.2-3.3.22-28.10.19-25.11.17-23.12.14-20.01.28.01-3.02.31.12.01-6.1.Financial Markets The market for government securities.

In May 2002 in the market for the Russian foreign debt one observed a stable situation, without any clear trend in quotations dynamics (see Figs. 1 and 2). The pattern could be explained by a lack of important events both in the Russian economy and emerging markets as a whole. One of few influencing factors was some increase in short-term interest rates (LIBOR) in the second half of May, which induced a rise in yields on the Russian two-year bonds (from 4.5% to 5% annualised).

FIGURE 1.

Minfin bonds' yields to maturity in February through May 12% Tranche 4 Tranche 5 Tranche 6 Tranche 11% 10% 9% 8% 7% 6% 5% FIGURE 2.

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