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Monitoring of the project implementation is suggested to perform by standard administrative methods of control on the part of management bodies responsible for fulfillment of the planned activities, and, at best, one can expect extension of the list of indicators, according to which information will be asked from regions. This may entail a gap between the positive dynamics of parameters (controlled by higher authorities) and changes in other components of availability and quality of medical aid provided for population. There is some risk that, on the one hand, traditional forms of control will not provide receiving of data that reflect an adequate picture of effectiveness of the taken measures and, on the other, will not be a serious obstacle for inefficient use of funds allocated to the project S.V.Shishkin Military expenditures in the 2006 Federal Budget In accordance with the adopted federal budget, Russias military expenditures in the year 2006 will amount to 4.04% of GDP, rising, in real terms, by 5.9%, notwithstanding the fact that the planned increase in expenditure under the budget item National Defense amounts to just 3.7%. Under conditions of the ongoing decline in the transparency of the military economy, the leadership of the Ministry of Defense continues to concentrate its efforts on increasing the investment component of military expenditures.

The Federal Budget of the Russian Federation for the year 2006 (FB-06)16 envisages the expenditure of 666 billion roubles (2.73% of GDP, or 15.6% of total federal expenditure of the FB-06) under the item National Defense (Table 1). Under this item, the general rise in expenditure, in real terms, amounts to 3.7% by comparison with the previous year, but the amount of spending under the major sub-item, The Armed Forces of the Russian Federation, has grown by 6.25%. A considerable rise in expenditures is observed only with regard to the item The Nuclear Weapons Complex (by 15.7 %), while the rest of the items demonstrate a reduction in the amount of spending. It is also noteworthy that in the course of considering the draft FB-06 in the Federal Assembly, the general amount of expenditures under the item National Defense was reduced by 0.2% (or by more than 1.230 billion roubles).

Expenditures under the item National Security and Law-Enforcement Activity (Table 2) will amount to 541.6 billion roubles (or 2.22% of GDP, or 12.7% of the expenditure of FB-06 ), which represents a 6.8-percent grown, in real terms, against the level of the previous year. Given law enforcement agencies significant share in expenditure under this item (31%), the insignificant rise in expenditure on law enforcement agencies (by 1%) has made it possible to considerably increase the financing of internal service troops, state security agencies and frontier defense bodies (by 11-18%).

Financing under the item The Prevention and Liquidation of Consequences of Extraordinary Situations and Natural Disasters; Civil Defense is planned to be increased by 13.5%.

It is not in the FB-06 alone that the rate of growth in expenditures on security exceeds the rate of growth in expenditures on defense. An analysis of the dynamics of these expenditures (Table 3 and the Figure) indicates that throughout the period of seven years, the former are to rise four-fold in real terms, and the latter - by more than 2.5 times (or by 166%), and that the growth trends tend toward a slightl decline.

Concerning the 2006 Federal Budget, see Federal Law No 189-FZ adopted by the State Duma on 7 December 2005.

Table Direct military expenditures of the Federal Budget under the item National Defense Difference be- Share of expenditures, % / Amount in Nos tween expendi- growth against 2005, by item FB-06, in mln of tures of FB-Item and sub-items roubles, / ite and FB-05, mln with regard to with regard to same amount ms roubles / growth, FB-06 GDP in 2005 prices in % 1 National Defense 666 027 22 214 15.60 2.600 565 3.70 0.74 0.1.1 Armed Forces of Russian 497 771 28 034 11.66 2.Federation 448 847 6.25 -0.23 0.1.2 Mobilization preparedness 5 181 1 008 0.12 0.and military training for civil- 4 672 21.56 0.02 ians 1.3 Mobilization preparedness of 3 500 344 0.08 0.economy 3 156 10.90 0.02 1.4 Preparation and participation 98 29 0.00 0.in safeguarding collective 89 32.33 security and peace-keeping activity 1.5 Nuclear Weapons Complex 11 430 1 613 0.27 0.10 306 15.65 0.02 0.1.6 Realization of international 6 083 630 0.14 0.obligations in sphere of mili- 5 485 11.49 -0.03 tary-technological cooperation 1.7 Applied research in national 92 918 5 617 2.18 0.defense sphere 83 785 6.70 0.35 0.1.8 Other issues in national de- 49 045 1 878 1.15 0.fense sphere 44 225 4.25 0.15 0.Table Direct military expenditures under the item National security and law enforcement activity Amount in Difference Share of expenditures, % / growth Nos FB-06, mln between ex- against FB-5, by item of roubles / penditures of Item and sub-items ite same FB-06 and FB- with regard with regard to ms amount in 05, mln roubles to FB-06 GDP 2005 prices / growth, in % 2 National security and law- 541 635 33 089 12.68 2.enforcement activity 488 399 6.77 0.08 0.2.1 Internal service troops 35 827 5 345 0.84 0.32 306 16.55 0.08 0.2.2 Security agencies 91 747 15 172 2.15 0.82 730 18.34 0.24 0.2.3 Frontier defense bodies 44 984 4 516 1.05 0.40 563 11.13 0.04 0.2.4 Provisions for personnel, combat 10 179 2 739 0.24 0.training and material and techni- 9 178 29.85 0.06 0.cal security of civil defense troops of Ministry for Emergency Situations Table The dynamics of expenditures on defense and security in 1999-Years 1999 2000 2001 2002 2003 2004 2005 Expenditures under item 93 140 214 281 354 427 578 National Defense in 702 852 688 970 907 376 351 prices of budget year / in 93 117 150 173 190 204 240 1999 prices, mln roubles.

702 181 598 504 987 814 575 Growth against previous 25.1 28.5 15.2 10.1 7.2 17.5 3.year, % Growth against 1999, % 25.1 60.7 85.2 103.8 118.6 156.7 166.Expenditures under item National Security and 51 79 131 165 249 318 455 law enforcement activity 324 802 621 999 799 543 310 in prices of budget year / 51 66 92 102 135 152 185 in 1999 prices, mln rou- 324 391 329 144 618 448 758 bles Growth against previous 29.4 39.1 10.6 32.8 12.4 21.9 6.year, % Growth against 1999, % 29.4 79.9 99.0 164.2 197.0 261.9 286.700,Expenditures on defense, in 600,nominal terms 500,Expenditures on defense, in real 400,terms 300,Expenditures on security, in 200,nominal terms 100,Expenditures on security, in real terms 1999 2000 2001 2002 2003 2004 2005 Source: IET calculations Figure. Dynamics of expenditures on defense and security, bn roubles A considerable proportion of the above-noted fall in defense expenditures, seen after the year 2004, should be attributed to the changes in budget classification, which have resulted in redistributing some of the military expenditures to other, non-military, sub-items, starting from the year 2005.

An analysis of the distribution of the FB-06s allocations, by the functional classification types of expenditures, has indicated that under the items Education, Culture, Cinematography, and Mass Media and Health Care and Sport, 63.7 billion roubles (or 0.26% of GDP, or 1.5% of federal budget expenditure) can be classified as military expenditures or as military-related expenditures (including the classified ones). The share of the Ministry of Defense17 in the above mentioned expenditures amounts to no less than 42.7 billion roubles (0.18 % of GDP, or 1 % of federal budget expenditure). Of the expenditures under the item Housing and Communal Facilities, military and militaryrelated expenditures account for 1.9 billion roubles (0.01% of GDP or 0.04% of federal budget expenditure).

The resolution of the State Dumas Committee on Defense regarding draft Federal Law No 211446-4 On the Federal Budget for the Year 2006 (approved by Decision No 72 / 5.2 of 15 September 2005).

As regards the indirect military expenditures of the federal budget (Table 4), noteworthy is the decline, in real terms, in pension provision of servicemen subordinated to the Ministry of Defense, which has been going on for the past few years. At the same time, expenditures on pensions continue to grow in law enforcement and national security agencies (by almost 14% in 2006, against 10.5% growth in 2005). Expenditures on providing the retiring servicemen with state housing certificates will actually remain at the level of the previous year, while the Ministry of Defenses share in them will not exceed 40% (approximately 6.2 billion roubles).

Table Indirect military expenditures related to past military activity Amount in Difference be- Share of expenditures, in % / Nos FB-05, mln tween expendi- growth against FB-04, by item of Items and subitems roubles / tures of FB-05 and ite with regard With regard same amount FB-04, mln roums to FB-05 to GDP in 2004 prices bles / growth, in % 4.1 Pension provision to service- 78 482 1 919 1.84 0.men subordinated to Ministry of 70 768 2.71 0.22 0.Defense 4.2 Pension provision of service- 65 606 8 268 1.54 0.men and persons equated to 59 158 13.98 0.10 0.them in state security and law enforcement agencies 4.3 Sub-program State Housing 15 597 19 0.37 0.Certificates in 2004-2010 14 064 0.14 0.03 Direct military and military-related expenditures (Table 5) will considerably increase, although their rise will be lagging behind that of federal budget expenditure, which has risen, by comparison with the previous year, by 8.79%.

Therefore, their share in federal budget expenditure will decrease, while insignificantly increasing with regard to GDP, owing to the fact that the planned rise in budget expenditure in the year 2006 will be considerably higher than economic growth.

Formally, the amount of direct and indirect military expenditures of the Russian Federation in the year 2006 (the closest to that determined in accordance with the methodology adopted in NATO) will equal 3.87% of GDP (against 3.81% in 2005), but with the non-military expenditures of the Ministry of Defense taken into account, this figure will rise to 4.04% (even without the military expenditures under the item Housing and Communal Facilities being taken into consideration).

Table Aggregate indices of military and military-related expenditures Difference be- Share of expenditures, in %, Amount in tween expendi- growth against FB-05, by item Nos FB-06, mln tures of FB-of Expenditures roubles / and FB-05, mln with regard to with regard items same amount roubles / FB-06 to GDP in 2005 prices growth, in % 1 General direct military expendi- 848 764 49 987 19.88 3.tures 765 341 6.53 0.33 0.2 Aggregate direct and indirect mili- 942 842 49 987 22.08 3.tary expenditures relating to pre- 850 174 5.88 0.53 0.sent and past military activity 3 General expenditures on national 1 207 661 55 303 28.28 4.defense, security, and law en- 1 088 964 5.08 0.92 0.forcement activity 4 Amount of direct and indirect 1 367 346 55 303 32.02 5.federal expenditures related to 1 232 954 4.49 1.25 present and past military and law enforcement activity, or safeguarding national security In the year of 2006, the degree of restrictedness of the federal budgets expenditures rose, in general, to 12% (from 11.3 in 2005). At present, 44% of expenditures under the item National Defense are classified (against 42.1 in 2005). Apart from the above mentioned changes in budgetary classification, a number of fundamental changes have taken place in the composition of the budget proper as a document: thus, for the first time in several years, it is no longer appended by two annexes, one of which (classified) was presenting information on the numerical strength of the Armed Forces and the other formations where military service was envisaged, and the other (non-classified) was presenting information on the distribution of allocations for equipping the Armed Forces. Despite this, the number of classified annexes to the 2006 budget have increased to ten (against 9 in 2005).

In general, the quality of the budget in the part of defense remains low. The head of the Economic and Financial Service of the Ministry of Defense has acknowledged18 that the planned volumes of financing for 2006 and the following years are based on the indices of the long-term financial plan, where the level of inflation is understated with regard to the rise in the prices of energy and energy carriers planned in the same document. In general, the Ministry has received, for the year 2006, almost 90 billion roubles more than for the last year. Of this amount, 53.5 billion roubles account for the increase in the share of the Ministry of Defense in the state defense order (up to 236.7 billion roublesout of the general amount of 567.7 billion roubles20). The rest will be spent mainly on increasing the money allowances of servicemen and the wages of civilian personnel, on housing construction, on financing the troops withdrawal from Georgia, and on organizing, at the agencies of local selfgovernment, the primary registration of those liable for military service. No fundamental changes in the financing of combat training of the Armed Forces, including any increase in the purchases of fuel, have been envisaged.

And finally, the Minister of Defense21, when delivering the speech to the senior commanders of the Armed Forces and President Putin at a conference on 9 November 2005, acknowledged the existence of serious financial problems with regard to the implementation of the federal target program The Transition to Manning a Number of Detachments and Military Units with Servicemen Conducting Military Service under a Contract for the years 2004-7. Thus, 22,306.9 million roubles is to be allocated for its implementation in the year 2006, while the necessary amount is 23,153.8 million roubles;

this means that the amount of underfinancing in two years (2005-6) with regard to this program will be equal to 4,088 million roubles, which will be one of the reasons for its failure.

V. B. Zatsepin, A. V. Lebedeva Privatization and federal property management:

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