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INSTITUTE FOR THE ECONOMY IN TRANSITION RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES December 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 2 The State of the Federal Budget The federal budget in January through October of 2002 was executed as follows: revenues Rb. 1803.4 billion (or 20.2 % of GDP), expenditures (actual financing) Rb. 1589.5 billion (or 17.8 % of GDP). (see Table 1). The federal budget surplus made Rb. 213.9 billion, or 2.4 % of GDP.

Table 1.

The monthly execution of the federal budget of the Russian Federation (in % of GDP1, in comparable prices).

XII`01 I`02 II`02 III`02 IV`02 V`02 VI`02 VII`02 VIII`02 IX`02 X`02 Revenues Corporate profit tax 2,4% 1,4% 1,4% 1,5% 1,9% 1,9% 1,7% 1,7% 1,7% 1,6% 1,7% Personal income tax 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% VAT, special tax and excises 0,0% 4,9% 4,4% 4,0% 3,9% 3,6% 3,5% 3,5% 3,3% 3,2% 3,1% Tax on foreign trade and foreign 9,4% 9,3% 9,1% 9,3% 9,3% 9,3% 9,3% 9,3% 9,1% 9,0% 8,9% trade operations Other taxes, duties and payments 7,1% 6,9% 6,4% 6,8% 6,9% 7,0% 7,0% 7,0% 7,0% 6,9% 6,9% Total- taxes and charges 2,2% 2,4% 2,6% 2,5% 2,4% 2,3% 2,3% 2,2% 2,1% 2,0% 2,0% Non- tax revenues 3,7% 3,2% 3,3% 3,2% 3,0% 2,9% 2,9% 2,9% 2,8% 2,8% 2,8% Revenues, total 0,6% 9,7% 9,1% 8,7% 8,7% 8,4% 1,8% 2,0% 2,0% 2,0% 2,1% Expenditure 16,2% 20,4% 19,6% 19,6% 19,9% 19,6% 19,3% 19,4% 18,9% 18,5% 18,6% Public administration 1,4% 2,1% 1,6% 1,4% 1,3% 1,2% 1,3% 1,4% 1,4% 1,4% 1,6% National defense 17,6% 22,4% 21,2% 20,9% 21,2% 20,9% 20,6% 20,9% 20,4% 20,0% 20,2% International activities Judicial power 0,5% 0,1% 0,2% 0,3% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4% Law enforcement and security 2,7% 1,0% 1,5% 1,9% 2,3% 2,4% 2,5% 2,5% 2,5% 2,4% 2,4% activities Fundamental research 0,3% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4% 0,3% 0,3% 0,3% Services provided for the 0,1% 0,0% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,1% 0,2% national economy Social services 1,6% 0,6% 0,9% 1,0% 1,2% 1,2% 1,3% 1,4% 1,4% 1,4% 1,4% Servicing of public debt 0,3% 0,0% 0,1% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% Other expenditure 1,3% 0,1% 0,3% 0,4% 0,5% 0,6% 0,7% 0,8% 0,8% 0,8% 1,2% Expenditure, total 2,3% 3,7% 4,8% 4,8% 5,3% 5,2% 5,2% 5,2% 5,1% 4,9% 5,5% Loans, redemption exclusive 2,6% 2,0% 3,4% 3,4% 2,6% 2,5% 2,4% 2,3% 2,4% 2,4% 2,2% Expenditure and loans, 3,0% 2,9% 3,3% 3,6% 3,9% 4,0% 4,0% 4,0% 3,9% 3,8% 3,9% redemption exclusive Budget deficit (-) 14,7% 10,9% 15,0% 16,1% 16,9% 17,1% 17,2% 17,2% 17,1% 16,9% 17,8% Domestic financing 2,9% 11,5% 6,2% 4,8% 4,3% 3,8% 3,4% 3,7% 3,3% 3,1% 2,4% Other taxes, duties and payments -0,1% -11,2% -4,6% -2,7% -2,0% -1,8% -1,6% -1,8% -1,3% -1,2% -0,5% Total- taxes and charges -2,8% -0,4% -1,6% -2,1% -2,3% -1,9% -1,8% -1,9% -1,9% -1,9% -1,9% Non- tax revenues -2,9% -11,5% -6,2% -4,8% -4,3% -3,8% -3,4% -3,7% -3,3% -3,1% -2,4% * % ; ** As compared with the figures registered in the respective period of 2001, the budget revenues increased by 3.4 p.p., while expenditures grew by 3.9 p.p. and budget surplus decreased by 0.5.

VAT accounted for the major share of federal tax revenues 37 % of the total tax revenues, what is somewhat below the respective indicator observed in January through October of the preceding year (42 %).

Social services accounted for the major part of the expenditures of the federal budget 5.5 % of GDP, or 31 % of the total expenditures. As of November 1, the expenditures for the servicing of the public debt made 2.2 % of GDP, while in the respective period of the preceding year they made 2.9 % of GDP.

According to the preliminary estimates of the Finance Ministry, as concerns the fulfilled funding2 the federal budget in January through November of 2002 was executed as follows: revenues Rb. 1991.0 billion (20.1 % of GDP), expenditures Rb. 1920.1 billion (19.4 % of GDP) (see Table 2).

Because of the estimated data on GDP, the indices may be subject to revision.

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).

Table 2.

The monthly execution of the federal budget of the Russian Federation (in % GDP, fulfilled funding).

I`02 II`02 III`02 IV`02 V`02 VI`02 VII`02 VIII`02 IX`02 X`02 XI`Total 22,2% 21,0% 20,9% 21,2% 20,8% 20,5% 20,5% 20,5% 20,0% 20,2% 20,1% Public administration 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,6% National defense 1,7% 2,4% 2,4% 2,7% 2,7% 2,7% 2,7% 2,7% 2,6% 2,7% 2,7% International activities 0,4% 0,2% 0,4% 0,5% 0,4% 0,4% 0,4% 0,3% 0,3% 0,3% 0,3% Judicial power 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% 0,2% Law enforcement and 1,6% 1,4% 1,4% 1,5% 1,5% 1,6% 1,9% 1,6% security activities 1,6% 1,8% 1,8% Fundamental research 0,3% 0,3% 0,2% 0,3% 0,3% 0,3% 0,2% 0,3% 0,3% 0,3% 0,3% Services provided for 0,3% 0,6% 0,8% 0,9% 1,0% 1,0% 1,1% 1,1% the national economy 1,0% 1,5% 1,5% Social services 5,0% 5,7% 5,3% 5,9% 5,7% 5,5% 5,6% 5,4% 5,2% 5,7% 5,8% Servicing of public 1,9% 3,4% 3,4% 2,7% 2,5% 2,4% 2,6% 2,4% debt 2,4% 2,2% 2,0% Other expenditure 3,5% 4,0% 3,9% 4,0% 4,6% 4,2% 4,0% 4,0% 4,0% 3,9% 4,0% Total expenditure 15,5% 18,7% 18,6% 19,1% 19,4% 18,9% 19,1% 18,6% 18,2% 19,2% 19,4% (+) / 6,8% 2,3% 2,3% 2,1% 1,4% 1,6% 1,4% 1,8% (-) 1,7% 1,0% 0,7% According to preliminary estimates, in November of 2002 tax revenues of the federal budget decreased to Rb. 98 billion (without the single social tax). In real terms the revenues made 241.0 % of the level registered in January of 1999, while the same indicator was at 299.7 % in October of this year (see Table 3).

Table 3.

Actual tax revenues to the federal budget, according to the data of the MTC (in % of the data for January of 1999) 3.

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 V VI VII VIII IX X XI 218,7% 187,1% 234,8% 277,8% 239,6% 218,0% 284,4% 246,5% 254,8% 299,7% 241,0% 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.

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% The debts related to the payments due to the federal budget made Rb. 248.8 billion as on November 1, 2002, the arrears of the profit tax made Rb. 35.3 billion. For the dynamics of actual tax debts as broken down by key taxes since June of 1999 see Figure 14.

The revenues of the consolidated budget in the first 10 months of 2002 made 32.0 % of GDP, including tax revenues at 25.4 % of GDP (see Table 4). Expenditures of the consolidated budget somewhat increased and made 29.3 % of GDP. The surplus of the consolidated budget in January through October of 2002 was 2.7 % of GDP, what is the record low in the last two years.

Table 4.

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% 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.

June August October December February April June August October December February April June August October December February April June August October 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 IV V VI VII VIII IX X Taxes 28,7% 23,6% 24,3% 26,5% 26,6% 25,9% 26,4% 25,9% 25,2% 25,4% Revenues 32,9% 31,3% 31,4% 33,6% 33,6% 32,7% 33,3% 32,5% 31,7% 32,0% Expenditures 18,3% 23,7% 26,0% 28,4% 28,4% 28,8% 29,1% 28,9% 28,4% 29,3% Deficit 14,6% 7,7% 5,4% 5,3% 5,2% 3,8% 4,2% 3,7% 3,3% 2,7% L. Anisimova, E. Sharipova, S. Ponomarenko Monetary Policy In November of 2002, the consumer price index increased by 1.6 %. The greatest rise in this group was registered for food products (+ 2.0 %), while prices of non-food goods increased only by 0.9 %, and prices of services grew by 1.9 %. The commodity structure of the increase in consumer prices is an evidence in favor of the hypothesis about the domination of seasonal factors. For instance, the growth in prices of fruits and vegetables made 6.2 %, while prices of groats and legumes increased by 11.1 % and of granulated sugar and butter by 5.1 %.

In December, relatively high rates of inflation persisted (see Figure 1). According to our preliminary estimates, the monthly increase in CPI was over 1.8 %, what makes 24 % per annum. Therefore, the annualized inflation may be at 15.5 %. This value is below the respective indicator observed in 2001 (18.%), however, in annualized terms, it exceeds the upper limit of the range of targeted inflation for year (12 % to 14 %) by 1.5 p.p.

FIGURE 1. CONSUMER PRICE INDEX IN 1,1% 1,0% 0,9% 0,8% 0,7% % 0,6% 0,5% 0,4% 0,3% 0,2% 0,1% 0,0% 31 14 28 11 25 11 25 8- 22 6- 20 3- 17 1- 15 29 12 26 9- 23 7- 21 4- 18 2.1 -.0 -.2- - - 14 - 12 - 9. - 7. -.7- -.8- 15 - 13 - 10 - 8.

2. 20 1- 17 3. 17 31.4. 28.5. 26 6. 23 7. 21 4. 18 1..9. 29.1 27.1 24 01.0 3..2. 3..3..3. 2.4..5. 02.6. 02.7. 8..8. 9..9. 0..1 1..1.02 - 1. 02 02 02 02 02 02 02 02 02 02 02 02 02 02 0. 02 1. 6. 02.0 02 1.

In December of 2002, the rapid growth in the gold and currency reserves of the Bank of Russia ceased (see Figure 2). We suppose that it is primarily due to the fact that the Finance Ministry of the RF purchased currency in order to repay external debt (in the last month the amount of debt payments made over US $ million). At the same time, the accumulated amount of reserves (Rub. 48 billion) has reached the historic high for Russia and exceeds different estimates of safe (i.e. sufficient to cover three-months imports and ensure the stability of forex market) level (US $ 40 to 45 million).

In December, the dynamics of monetary base were determined by seasonal factors. A rapid growth in monetary aggregates resulting from demand for liquidity on the part of households (in relation to increasing expenditures) and firms (payments to the budget and completing of annual balances), as well as growth in budgetary expenditures, is traditionally observed in the end of the year. For instance, in the first two weeks of December, the increase in the narrow monetary base made 3.4 % (see Figure 2).

Figure 2. DYNAMICS OF THE MONETARY BASE AND GOLD AND CURRENCY RESERVES IN 2002 880 49,48,47,46, 45,.

. 44, 43, 42, 41,740 40,39,38,37,31.

660 14- 28.

11- 25. 11- 25- 8- 22- 6- 20- 3- 17- 1- 15- 29. 12- 26. 9- 23- 7- 21- 4- 18- 2- 36,12. 01- 2- 17. 31. 28. 12. 26. 23. 21. 18. 15. 29. 13. 10. 8.20. 7- 8- 27. 24.

17.

14. 9.6. 7.7.

01- 01. 2.0 3.3. 3.0 3.0 4.0 5.0 6.0 7.0 4.8. 8.0 1.9. 9.0 10. 10. 11. 11.

3.5.0 9.0 2.4.2 02 6.1.

2.02 2 02 2 2 2 2 2 2 02 2 02 2 02 02 02 2 2 (. .) (. $) S. Drobyshevski.

Financial Markets The Market for Government Securities In December, a side trend prevailed on the market Russian forex-denominated bonds (see Figures 1 and 2). The quotations of both short and long term bonds practically did not change. The maximal growth was registered for bonds of the 7th tranche of Minfin bonds (+ 2.81 %), RUS-18 (1.2%), and RUS-30 (+1.09%). It shall be also noted that on December 4 the prices of the most liquid Russian securities (RUS-30 maturing in 30 years) exceeded an important level 80 % of the nominal value. However, by the end-month the quotations of bonds declined again. Instability on the markets of other developing countries, in particular, Brazil and Argentina, played a negative role. Higher rankings of the Russian Federation by the leading international ranking agencies have been already taken into account in prices and had practically no impact on the yields of bonds.

In December, the RF Finance Ministry transferred US $ 352.8 million as the payment of interest on Eurobonds. On December 18, the RF Finance Ministry announced the completion of the first tranche of exchange of commercial debt of the former USSR into Russian Eurobonds. The total amount of claims of the creditors of the former USSR made US $ 1.28 billion. According to the estimates of the Finance Ministry, the amount of the commercial debt of the former USSR makes over US $ 3 billion taking into account the accumulated interest.

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