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Since 2005 the Compensation Fund (CF) has been accumulating funds to finance all of the existing in the legislation federal expenditure mandates established in an explicit form, which are financed through subventions to subnational budgets. The Federal Law On the Federal Budget for 2011 and for the Period till 2013 provides for a material decrease in the RUSSIAN ECONOMY IN trends and outlooks volume of subventions from RUB 378,7 bln in 2010 to 246,2 in 2011 or by 35% in nominal terms. Such a substantial reduction in the amount of subventions was conditioned primarily by completion of the program on the provision of housing to veterans of WWII which was financed with federal budget subventions of RUB 116,9 bln or about 30% of the total volume of subventions in 2010.

With regard to subsidies, the Federal Law On the Federal Budget provides for an increase of RUB 24,5 bln in relevant allocations to total RUB 435,9 bln in 2011 (by 5.9% in nominal terms against 2010). As a result, a share of subsidies will be increased in 2011 from 29.9% in 2010 to 34.8% in the total volume of intergovernmental fiscal transfers allocated to lower levels of power. Following are the main targets of cofinancing of regional and municipal expenditures in 2011:

- government-sponsored program on the development of the agricultural industry and regulation of agricultural markets, raw material markets and food markets for 2008 (22.8% of the total subsidies);

- motor road (highway) building and modernization (12.8%)1;

- additional measures aimed at easing the tensions in the labor market of the constituent territories of the Russian Federation (6.4%);

- financing supplementary medical aid from district primary care doctors and pediatricians, general practice doctors (family doctors) (5.0%).

It should be noted that while cofinancing expenditures on federal support of the agricultural industry remained one of the federal top priorities in the period between 2009 and (in 20082009 a share of relevant allocations accounted for about 17% in the total volume of subsidies, and increased up to 21% in 2010), subsidies on road facilities were substantially reduced at the onset of the economic recession (the relevant allocations in 2009 were reduced by 32.6% against the initial version of the Federal Law On the Federal Budget for 2009 ).

As a result, a share of subsidies on road facilities reduced in total subsidies from 23.4% in 2008 to 19.6% in 2009 and 14.8% in 2010. These subsidies are scheduled for further reduction to eventually account for 12.8% of the total subsidies in 2011. It should be noted that the volume of federal budget subsidies on road facilities is to be reduced together with creation of a federal road fund and regional road funds. Relevant amendments have not yet been made to the federal legislation to date.

In addition, it should be noted that efficiency of subsidies as part of the governmentsponsored program on promotion of the development of the agricultural industry and regulation of agricultural markets, raw material markets and food markets for 20082012 gives rise to a serious doubt. Delegation of powers to support agricultural production at the regional level may result in better support to the regions which can afford such a policy rather than those which have favorable climatic and natural conditions. This trend may be strengthened through allocation of federal budget funds in support of the agricultural industry based on the principle of cofinancing. To be more exact, more financially stable regions may benefit from such a support in their trade wars for agricultural markets with less financially stable regions.

In 2011, substantial volumes of funds will be allocated to implement measures aimed at easing the tensions in the labor market of the constituent territories of the Russian Federation (RUB 27,8 bln), as well as promoting the development of SMEs (RUB 16 bln). It must be These subsidies include relevant expenditures as part of federal special-purpose programs.

Section 2.

Monetary-Credit and Budgetary Spheres borne in mind, however, that it is the authorities of a constituent territory of the Russian Federation that are responsible for efficient utilization of the funds.

2.4. Possible scenarios of social and economic development of the Russian Federation in 2011The following factors will determine main macro-economic parameters of the development of the Russian economy in 2011 2013: the situation in the world economy, the status of the internal institutional environment and business climate, the budget policy of the RF Government and the monetary policy of the Bank of Russia. In this section we focus on the analysis of the external development factors (the world economy) and the budget (general parameters of the budget and the national debt) and monetary policy.

In the world economy perspective, the main factors and sources of economic growth of Russia are: the level of prices and physical scope of demand for basic raw materials of the Russian export on the world market (oil and other raw materials), the access to capital on the world financial market for Russian borrowers, growth rates of the world economy and demand for non-raw materials exported from Russia.

Risks and restrictions of the economic growth in Russia are determined by the lengthy recovery of the leading world economies from the crisis, suspended expansion of the physical demand for raw and non-raw materials of the Russian export, a faster growth rate of new emerging markets and enhancement of competition between the BRICS countries on the world capital market; all these can reduce the access to capital for Russian companies and minimize opportunities for expansion of the Russias internal market; this, in turn, makes impossible for Russia to develop with a focus on the internal market only (as China and India), without being involved in the global economy, and may cause emergence of new centers of recession on the developing and developed markets.

Should the world economy demonstrate successful development, the leading economies might overcome the crisis of 20072009 by 2012, and in 2013 the growth rates of the world economy can reach 4.0-4.5%.

The main conditions for implementation of this scenario are:

A responsible and tough policy of the leading world countries to cut their budget deficits and to carry out a coordinated monetary policy. However, in the mid-term, the leading countries will come out of the crisis and develop in the environment of an extremely high debt burden on their national budgets; this means they will have to reduce expenditures for their social programs and maintain internal demand; also they may face new challenges in their economies. The higher debt load and the growth of pension costs may become a long-term problem for the world economies to sustain their economic growth.

Reaching agreements within G8 and G20 regarding new requirements to the global financial market, improvement of quality of regulation of financial institutions, formation of a new system of setting and supporting exchange rates of the key world currencies and, possibly, transformation of the reserve notion towards more flexible and broader currency portfolio and other financial assets.

Resolution of the issue of global macroeconomic imbalances on the principles of mutual benefits, consideration of interests of all parties concerned and objective economic conditions and competitive advantages; removal of non-market restrictions on capital reallocation, and adherence to non-discriminative terms in the international trade.

RUSSIAN ECONOMY IN trends and outlooks We believe, in such context the world oil prices will remain almost unchanged in terms of constant prices or will have a slight positive trend. The developments of the Arabic countries early 2011 may have a short-term uplifting effect, and by the mid of the next year the Arabic factor will cease to play an important role in the setting prices on the world oil market.

There is an alternative scenario associated with pessimistic developments in the world and in the Russian economy, as a consequence. The main assumption underpinning this scenario is possible implementation of the mentioned risks and emergence of a new crisis in the world economy. The assumptions include:

1. Mistakes made by the developed economies at the stage of recovery, the absence of coordination of actions, inability of the governments to lever a further step up of the budget deficit, etc.

2. Low efficiency of the fiscal incentives in China: with account of stagnating external demand, this can lead to a sharper slowdown of the development of the Chinese economy with possible negative social and political implications, and to a decline of the aggregated demand for raw materials on the world market.

3. Development of significant, for the financial world, local or regional crisis on the developing markets, and/or atraditional crisis (as in the 1990es) in the developing countries.

Regardless of specific reasons and the time of a new recession, if this scenario is realized, it would reduce average annual growth rates of the world economy in 2011 2013 (down to 3% - 4%)..

For Russia, the development of this scenario would mean high volatility of prices on raw materials, lower volumes of exported raw materials and an extremely limited access to the world market. Note that in terms of the ratio of the leading world currencies, this scenario may demonstrate the highest degree of uncertainty since one of the possible conditions for its implementation is a crisis of a reserve currency in one of the issuing countries.

The budget policy of the RF Government affects the prospects of the economic growth by the following channels:

shaping expectations of economic agents (a degree of a long-term budget balance under various levels of oil prices, the size and ways to finance the Pension Fund deficit, etc.); formation of the macro-economic environment (affecting the interest rate, inflation rate, etc.);

meeting budget social obligations;

implementation of most important strategic infrastructure projects..

Let us review three possible cases of the social and political development of the Russian Federation in 2011 2013:

1. Base case 2. Optimistic case 3. Budget expansion case.

The base case in a number of its parameters corresponds to an innovation case (Inn2 option) of the project Main scenario terms and main parameters of the long-term forecast of the social and economic development of the Russian Federation for the period up to 2030 developed by the Ministry for Economic Development of Russia. In particular, the nominal price on Urals is gradually increasing from 81 $/bbl in 2011 to 84 $/bbl in 2013, the USD/Euro exchange rate is fixed at 1.3 USD/Euro. However, unlike in the Main scenario terms. we suppose that the capital inflow into Russia under this scenario will not exceed 3% of GDP (equal to $45 billion in 2010) and the world economy growth rates will make up to 4.5% per year, as said before.

Section 2.

Monetary-Credit and Budgetary Spheres We believe that under this scenario, the federal expenditures in 2011 2013 will not exceed 19-20% of GDP; this is in line with Federal Law On the federal budget for 2011 and the planning period of 2012 and 2013.

Under this scenario, the federal budget deficit is financed by the state market borrowings (the funds of the RF Reserve Fund will be exhausted in 2011 while the funds of the National Wealth Fund (NWF) will not be used for this purpose). We do not review an option to finance the federal budget deficit by the state property privatization proceeds since the terms and possible scope of proceeds from privatization cannot be assessed with a sufficient accuracy.

In the optimistic case, the Urals price is expected to be at 100 $/bbl in 2011 prices for the entire period and corresponds to 104 $/bbl in 2013 (the dollar devaluation rate is 2% per year). We assume here that the world economy growth rate can be as high as 5% per year while the capital inflow into Russia can reach 3.5% of GDP (corresponds to $50 billion in 2010). In 2011-2013, the federal budget expenditures are in line with the base case in nominal terms.

The budget expansion case is an option with additional federal budget expenditures related to possible adoption, in the pre-election period of 2011 2012, of new budget obligations, the beginning of full scale implementation of the announced State Program of weaponry procurement, the increase of monetary allowance of the servicemen, additional expenditures for the reform of the Ministry of Interior Forces, the increase of finances for the current federal target programs, etc. According to our estimates, the additional budget expenditures may reach 4-5% of GDP. In this case we also assume that the RF Central Bank will ensure, in spite of monetization of the federal budget deficit, a gradual decline of the growth rates of monetary supply at the expense of raising rates for deposits of commercial banks in the Bank of Russia and rates for reverse repo transactions and reserve requirements, etc.

A forecast of dynamic trend of the macroeconomic and financial variables and the indicators of the Russias federal budget has been developed based on the structural econometric model of the Institute of Economic Policy named after E. T. Gaidar. The model presents a system of regression equations and identical equations describing dynamics of the main indicators of the social and economic development of Russia.

The calculation results of the main macroeconomic and financial indicators for the reviewed cases are shown in Tables 2224.

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