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The RF federal budget revenues in September, October and November 2005 (as a percentage of GDP, budget execution in cash terms) Execution in cash terms Septem- October November ber Taxes and other payments adminis10.96% 12.17% 11.03% tered by Federal Tax Service Taxes and other payments adminis9.36% 9.81% 11.67% tered by Federal Customs Service Revenues administered by Federal Agency for Management of State 0.28% 0.67% 0.26% Property Revenues of federal budget adminis0.46% 0.77% 0.46% tered by other federal bodies Total revenues 21.07% 23.43% 23.42% As can be seen in Table 1, the structure of tax revenues demonstrated a certain change, as compared to the previous months. Thus, while in September and October of the current year the main bulk of tax revenues was constituted by the taxes and other payments administered by the Federal Tax Service, in November the main bulk of revenues was generated by the taxes and other payments administered by the Federal Customs Service (11.67%). The collected amount of the taxes and other payments administered by the Federal Tax Service went down by comparison with the previous month, and constituted 11.03%. After a one-month growth of the revenues administered by the Federal Agency for the Management of State Property in October, there occurred their stabilization in November (0.26%).

As for the rest of the federal budget revenues administered by other federal bodies, in November these amounted to 0.46% of GDP, which is markedly lower than both the October index and the average annual level.

The preliminary data on the financing of the federal budget expenditures in January through November 2005, submitted by the RF Ministry of Finance, are presented in Table 2.

Table 2.

The volumes of financing of the RF federal budget expenditures in January - November 2005 (as % of GDP) Financing of expenditures January - Sep- January - Octo- January Notember ber vember General state issues 2.88% 2.91% 2.68% of these, servicing of state and municipal debts 1.34% 1.34% 1.20% National defense 2.88% 2.93% 3.04% National security and law-enforcement activity 2.37% 2.40% 2.32% National economy 1.17% 1.21% 1.22% Housing and utilities system 0.03% 0.03% 0.04% Environment protection 0.02% 0.03% 0.03% Education 0.80% 0.88% 0.83% Culture, cinematography and mass media 0.24% 0.24% 0.25% Public health care and sports 0.49% 0.49% 0.47% Social policy 0.91% 1.01% 0.99% Interbudgetary transfers 7.56% 6.92% 6.38% Total expenditures 19.35% 19.04% 18.24% Table 3.

The execution of the RF consolidated federal budget in January September 2005 (as % of GDP) I II III IV V VI VII VIII IX X XI XII Taxes* 28.7% 23.6% 24.3% 26.5% 26.6% 25.9% 26.4% 25.9% 25.2% 25.4% 25.4% 25.5% Revenues 32.9% 31.3% 31.4% 33.6% 33.6% 32.7% 33.3% 32.5% 31.7% 32.0% 32.1% 32.1% Expenditures 18.3% 23.7% 26.0% 28.4% 28.4% 28.8% 29.1% 28.9% 28.4% 29.3% 29.7% 31.1% Deficit / 7.7% 5.4% 5.3% 5.2% 3.8% 4.2% 3.7% 3.3% 2.7% 2.4% 1.0% 14.6% Surplus I II III IV V VI VII VIII IX X XI XII Taxes* 25.6% 24.4% 25.6% 27.4% 27.1% 26.0% 26.1% 25.7% 5.0% 5.0% 5.1% 25.2% Revenues 32.0% 30.3% 31.5% 33.4% 33.6% 32.2% 32.2% 31.6% 0.9% 0.8% 0.7% 31.1% Expenditures 20.7% 25.3% 27.7% 28.8% 28.8% 28.6% 28.7% 28.5% 8.2% 7.8% 7.9% 29.7% Deficit / 11.3% 5.0% 3.8% 4.5% 4.7% 3.5% 3.6% 3.1%.7% 3.0% 2.8% 1.4% Surplus I II III IV V VI VII VIII IX X XI XII Taxes* 6.1% 21.8% 27.4% 27.4% 26.6% 27.2% 27.1% 26.4% 26.5% 26.9% 26.8% Revenues 30.6% 28.2% 29.8% 32.9% 32.9% 32.5% 33.1% 32.9% 31.9% 32.0% 32.3% 32.3% Expenditures 18.5% 22.8% 25.4% 27.3% 26.9% 27.0% 27.0% 26.9% 26.0% 25.9% 26.1% 27.8% Deficit / 12.1% 5.4% 4.4% 5.6% 6.0% 5.5% 6.1% 6.0% 5.9% 6.1% 6.2% 4.5% Surplus I II III IV V VI VII VIII IX X XI XII Revenues 48.8% 40.3% 40.3% 40.8% 38.8% 38.2% 37.6% 37.0% 36.0% Expenditures 22.2% 23.3% 24.9% 27.1% 26.5% 26.6% 26.7% 26.6% 27.2% Deficit / 26.5% 17.0% 15.4% 13.7% 12.3% 11.6% 11.0% 10.5% 8.8% Surplus It can be noted that as of the end of November the share of the federal budgets financed expenditures in GDP was 18.04%, which is much lower that the similar index achieved by the end of October 2005. The highest volume of financing, as before, was seen in respect to interbudgetary transfers (6.38%of GDP), national defense (3.04% of GDP), general state issues (2.68% of GDP), including the servicing of state and municipal debts (1.20%), and national security and law-enforcement activity (2.32% of GDP). The total all the other expenditure items amounted to about 3.82% of the GDP. By the results of November, one can notice the decreased shares in GDP of the majority of the expenditure items. Growth was demonstrated only by the expenditures on national defense, the housing and utilities sector, the national economy, and culture, cinematography and mass media.

Judging by the results of the period of January through September 2005, the RF consolidated budget incomes amounted to 36.0% of GDP, as compared to 31.9% of GDP during the same period of 2004.

The consolidated budget expenditures grew, as compared to the similar index of 2004 (26.0%), amounting to 27.2% of GDP. The consolidated budget surplus in January through September was 8.8% of GDP, or considerably higher than a similar index in 2004 (5.9%). Thus, the year saw a marked growth in the RF consolidated budget incomes against the background of almost unchanging expenditures, which resulted in the noted substantial growth in the consolidated budget surplus.

As of 1 December 2005, the amount of the RF Stabilization Fund was equal to 1236.5 billion roubles, as compared to 1094.5 billion roubles as of 1 November of the current year.

The main developments in the budget sphere In early November, official information was released concerning the intention of the RF Ministry of Finance, by the year 2007, to begin the formation of the Stabilization Fund at the level of 4-5% of GDP, which presently amounts to 500 billion roubles. According to A. Savatiugin, Director of the Department for Financial Policy of the RF Ministry of Finance, it is planned to formalize this proposal as amendments to legislation, to be adopted after the final approval, by the Government, of the package of anti-inflation measures prepared by the RF Ministry of Finance, the Ministry of Economic development and Trade and the Bank of Russia, and already submitted to the Government. Concerning the formation of the future generations fund, A. Savatiugin remarked that this is being discussed as an idea, and may also be formalized as amendments to legislation no earlier than 2007. In his opinion, the growing deficit of the RF Pension Funds budget represents, as before, an alarming fact, and there is no other idea, besides the idea concerning the formation of the future generations fund and the covering by that funds resources a part of the RF Pension Funds budget deficit, which would be both social and anti-inflationary.

Within the framework of the discussion concerning a possible lowering of the rate of VAT (which has become more active lately) and, in particular, in respect to M. Fradkovs proposal as to the necessity to lower the rate of this tax by 13% from the year 2007 onward, the RF Ministry of Finance once again expressed its negative opinion. According to Deputy Minister of Finance S. Shatalov, the Ministry, as before, believes it to be a more acceptable variant of action to lower the rate of VAT to 15% from the year 2009 onward, that is, beyond the financial plan for the years 2006-2008, which has already been formed. Besides, in November the RF Ministry of Finance voiced its comments concerning the proposal put forth by the RF Clearing House that a progressive scale of the income tax rate be introduced for high salaries. Thus, according to RF Minister of Finance A. Kudrin, the Ministry is firmly opposed to any such innovations because, after the existing flat rate of the income tax of 13% was introduced, resulting was a successful legalization of a part of the shadow business. As for the Clearing Houses proposals, they will result in promoting a revival of the shadow economys growth.

In mid-November, the RF Ministry of Finance issued a commentary concerning the forecast of the basic parameters of the federal budget pertaining to the results of the year 2005. Thus, according to RF Minister of Finance A. Kudrin, the RF federal budget surplus in the year which is nearing its end can amount to 7-8% of the GDP. For example, the surplus in 2006 is planned at the level of 3.2% of GDP.

Despite the noticeable difference between the 2005 indices and those forecasted for the year 2006, the RF Ministry of Finance admits that there might be a possibility of the forecasts upward revision on the basis of high oil prices. Also, the Minister noted that, owing to the early repayment of the external debt in the amount of more than $18 billion, the savings of the interest payments in the year alone will be approximately $1 billion, the total savings amounting to approximately $5 billion.

Also in mid-November, the RF Ministry of Finance released the information that the federal budget revenues in the year 2006 were to be increased by 328.7 billion roubles, to 5 374.8 billion roubles. As stated by Minister of Finance A. Kudrin, the revised data are included in the financial plan for the years 2006-2008, submitted by the RF Ministry of Finance to the RF Government. The financial plan has been adjusted, as compared to its previous version, by the forecasted rise in the price of Urals oil from $35 to $40 per barrel. However, changes were made to the budget revenues only, while the expenditures were to remain as before, at the level of 4 270 billion roubles.

D. Polevoi Monetary policy In November, the value of the consumer price index (CPI) amounted to 100.7, which is less that the rate of price growth in the same period of the preceding year by 0.4 p. p. These data make it possible to conclude that the inflation rate, as demonstrated by the years results, will be lower than in the previous year, and not in excess of 11.0-11.2%. Also in November, money supply in the RF continued to grow: the narrow monetary base increased by 1.4%. The volume of gold and foreign currency reserves by the end of December reached a new record high of $ 171.3 billion.

The growth of the consumer price index in November 2005 amounted to 0.7 % (as compared to 1.% in November 2004, see Fig. 1). The highest contribution to the growth in consumer price in November was made by the growing prices of food commodities: + 0.9 % (having been + 1.5 % in November of 2004). As seen by the months results, the highest growth in prices was demonstrated by fruit and vegetable products (+ 4.5 %), milk and dairies (+ 2.1 %), and butter (+ 1.4 %). The greatest fall in prices occurred in respect to the following groups of commodities: granulated sugar (- 0.6 %) and sunflower oil (- 0,2 %).

The prices of non-food commodities grew by 0.6 % (as compared to 0.7 % in November 2004).

This growth in prices of non-food commodities resulted primarily from the increasing prices of knitwear (+ 1.1 %), clothes and linen (+ 0.9 %) and footwear (+0.8 %). It should be notes that the growth rates of the prices of motor petrol in November continued to go down, both due to the seasonal factors influence (the demand for motor petrol in autumn and winter always decreases), and as a result of the agreement achieved between the RF Government and the leading oil companies concerning the freezing of petrol prices. During November the price of motor petrol increased, on the average, by only 0.3 % (it should be remembered that in October the growth rate of the prices of motor petrol was 0.5%, while in September 7.9 %).

The prices of the commercial services provided to the population also went up in November - by 0.%. The highest growth rate in November was displayed by the prices of communications services (+ 1.5 %), medical services (+ 1.3 %), the services rendered by cultural organizations (+1.2 %), preschool education services (+ 1.2 %) and public consumer services (+ 1.1%). The growth of the prices of housing and utilities services in November was no more than 0.5%, which is somewhat higher than the growth rate seen in October (+ 0.4 %). Only the prices of the services rendered by health resort and spa facilities went down in November (- 0.2 %), primarily due to the seasonal factors effect.

The growth in the base consumer price index4 from the beginning of 2005 did not exceed 7.7 % (having been 9.3 % in the same period of the preceding year). According to the IETs monthly bulletin of modeled short-term forecasts of socio-economic indices in the RF, the CPI in December was to be 0.9 %.

The base consumer price index reflects the inflation level on the consumer market less the seasonal factor (prices of vegetable and fruit products) and the administrative factor (tariffs on regulated services, etc.); it is calculated by the RF Statistics Service.

The Growth Rate of the CPI in 2002 - 2004 (% per month).

3,5% 3,0% 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% -0,5% During November 2005, the monetary base (in a broad sense5) grew by 44.5 billion roubles, to 2.trillion roubles (+ 1.8 %). The broad monetary base as of 1 November 2005 was 2.48 trillion roubles.

Below we are going to discuss the changes in each of the components of the broad monetary base.

The cash-in-circulation volume, including the cash balances of credit institutions, as of 1 December was 1.89 trillion roubles (+ 0.5 %, as compared to 1 November), the correspondent accounts of credit institutions with the Bank of Russia 335.5 billion roubles (+ 12.9 %), mandatory reserves 159.billion roubles (+ 3.4 %), banks deposits with the Bank of Russia 43.7 billion roubles (- 9.7 %), the value of the Bank of Russias bonds held by credit institutions 94.1 billion roubles (- 2.1 %), the RF Central Banks liabilities against securities buyback 0 billion roubles (no changes, as compared to November of this year), while the reserves on operations in foreign currencies deposited with the Bank of Russia 6.2 billion roubles (- 13.9%).

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