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FOREIGN TRADE As concerns commodity structure of import, the proportion of machinery and equipment accounted for 44.3% (43.4% - between January and November 2009). The value volume of import of machine-building products grew by 39.5% on a one-year basis. Import of passenger cars surged by 29% vs. the same period of 2009 and accounted for 6,193.000 pcs.

The nations balance of trade remained positive during the whole year and accounted for USD 10.8 bln. in November alone, while over the 11 months of the year it made up USD 136.2 bln.

(vs. 99.0 bln. in the respective period of 2009).

Since 18 December 2010 Russia imposed the 10% duty on copper export, and since December the export duty on nickel supplies was increased from 5 to 10%. As a reminder, in the early 2009, on the request of JSC GMK Norilsk Nickel, the Government zeroed export duties on nickel and cathode copper that had earlier accounted for 5% and 10%, respectively. At the time, the national ferrous metals producers faced a dramatic decline in demand and prices on the world markets, with copper prices falling to USD 3,000-3,200/t., or 2.5 times down vs. their respective values of the early 2008. Nickel prices fell nearly 3-fold, under USD 10,000/t.

In the spring of 2009, to create its public inventories, China vehemently started shopping for raw materials, including non-ferrous metals, and the economic environment began improving shortly thereafter. That is why in December 2009 the RF Government issued a Resolution on introducing a 5% duty on export of unalloyed nickel.

A subsequent return of copper duties was expectable Russia is one of the biggest copper producers. According to the Federal Customs Service, its 2008 copper export supplies to FarAbroad countries accounted for 201,000 t. worth a total of USD 1.22 bln. These figures practically doubled in 2009, making up 507,200 t. and USD 2.5 bln., accordingly. The figures for the ten months 2010 are: 375,200 t. worth a total of USD 2.6 bln.

The lions share of Russian copper production falls on the Big Three- that is, Norilsk Nickel, Ural Mining-Refinery Company and JSC Russian Copper Company, with Norislk Nickel exporting 75% of its copper production, thus securing a half of Russian export supplies.

The MinFin calculations suggest that thanks to the newly introduced export duties on copper, the 2011 federal budget should gross another Rb. 8.8 bln. in revenues, while another 6.5 bln. in revenues should be collected from the increased export customs duties on nickel.

With its Resolution of 29 December 2010 1190, the RF Government ruled to retain the 2011 export duties on round timber they will be at the level of 25% of the customs value, but no less than Euro 15/cubic meter. The duties on Russian timber supplies to Finland have recently formed one of major hurdles to Russias accession to WTO, with EU demanding their reduction since 2004. But, as the process of accession procrastinated, Russia took a course towards development of its own wood-working industry. In February 2007, the RF Government decided on a stage-by-stage increase of export duties on unprocessed timber. Since 1 July the duties rates were increased up to 20% of the cost of supplies and further to 25%, effective as of 1 April 2008. Export duties on round timber were envisaged to reach the protection level of 80% since 1 January 2009; however, under the EUs pressure coupled with the unpreparedness of the nations own wood-working sector, in 2008 Russia set moratorium on the move and froze the duties on the level of 25% of the customs value. The moratorium was set to expire on January 2011, and the duties might have reached the noted 80% level. However, at the RussiaEU summit held in early December 2010 the parties reached an agreement on extension of the term of the moratorium and a subsequent reduction of the duties upon Russias accession to WTO. Meanwhile, the Russian side does not refuse the right to increase the duties rates since 2012, should the accession to WTO fail.

Since 1 January 2001 Russia abolished duties on crude oil supplies to Belarus, per an intergovernmental agreement on distribution of export duties, which the countries signed on December 2010.

According to the document, in exchange for duty-free oil supplies Belarus shall transfer to the RF budget the whole volume of export duties on oil products exported from its territory to beyond the borders of the Customs Union, with export duties on the locally produced Belorussian oil (some 1.7 mln. t.) subject to collection to Belaruss budget.The bilateral carbohydrate agreement does not apply to Belaruss prospective oil procurements from Venezuela and other third RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES countries, with respective duties on petroleum derivatives produced from that oil being likewise subject to collection to Belaruss budget.

This arrangement shall remain in effect for three years until the three countries design another mechanism for distribution of export customs duties. As concerns the amount of the export duty on oil products Belarus is bound to transfer to Russias budget in 2011, the respective rate on light oil products shall account for 67% of the oil duty, while that on dark oil products shall be 46.7%.

STATE BUDGET STATE BUDGET E.Fomina According to tentative estimates. the federal budget deficit for 2010 amounted to 3.9 per cent of GDP against 5.3 per cent of GDP. approved in the original version of the budget law. This significant reduction in the budget deficit relative to the initial estimates was due to favorable foreign trade conditions. which contributed to outrunning revenue in the budget. At the same time the year was characterized by curbing government spending: total for the year was fulfilled 98 per cent of the annual budget plan. and in terms of cash budget execution around 17 per cent of annual expenditures were made in December. However. in view of the growing deficit in the pension system and adopted by the Russian government expenditure commitments. the budget expenditures will only increase.

Analysis of the main parameters of the expanded government budget execution in January-November According to the available statistics on the execution of the budget of the expanded government over the eleven months of 2010. the volume of the budget revenues has exceeded the level of the relevant period of 2009 by 0.6 percentage points of GDP1. Herewith. the expenditures in relative terms has been reduced by 2.2 p.p. of GDP. whereas in absolute terms they have grown by approximately RUR 1.170 bn. As a result. as of December 1. 2010. the budget of the expanded government has been executed with the surplus of 0.3 of GDP. whereas in the relevant period of 2009 the budget balance was negative and made 3.1 per cent of GDP (See Table 1).


January-November 2010 January-November against RUR. bn % of GDP RUR. bn % of GDP GDP. p.p.

Federal budget Revenues 7431.7 18.1 6445.9 18.2 0.Expenditures 8323.4 20.3 8178.8 23.1 2.Deficit () /Surplus (+) 891.7 2.2 1732.9 4.9 +2.Consolidated budgets of the RF Subjects Revenues 5909.2 14.4 5267.8 14.9 0.Expenditures 5484.7 13.3 5157.3 14.6 1.Deficit () /Surplus (+) 424.5 +1.1 110.5 +0.3 +0.The budget of the expanded government Revenues 14064.9 34.2 11871.7 33.6 +0.Expenditures 14165.1 34.5 12995.1 36.7 2.Deficit () /Surplus (+) 100.2 0.3* 1123.5 3.1 +2.For reference: GDP. bn rubles 41 103.4 35 386.* A significant surplus of the budget of the expanded government as against the deficit/surplus of the federal budget and budgets of the RF Subjects can be explained by the change in procedure for crediting of funds to extra-budgetary funds.

bypassing the federal budget as it was done before.

Source: The Ministry of Finance of the Russian Federation. assessments of Gaidar Institute for Economic Policy (IEP) 1 When analyzing the volume of revenues to the budget of the country one should consider revenue from investment income from funds management of oil and gas assets in 2009-2010 in the amount of 275.2 billion rubles. and 134 billion rubles. respectively.

RUSSIAN ECONOMY: TRENDS AND PERSPECTIVES Growth in revenues of expanded government budget in relative terms against the negative dynamics of growth in federal budget revenues was due to changes. introduced since 2010 in the order of crediting premiums to non-budgetary funds. by redistributing funds directly into the budget. bypassing the federal budget.

Consolidated budget of the Subjects of the Russian Federation over January-November of the current year was also executed with a surplus of 1 per cent of GDP against 0.3 per cent of GDP over the same period of 2009. Herewith. the amount of expenditure for the 11 months of decreased by 1.3 p.p. of GDP. while revenues of budgets of the Federal Subjects have decreased in relative terms by 0.5 per cent of GDP as compared with 2009. However. the share of donation from the federal government in the total regional income still remains high - about 20 per cent of all revenue of the RF Subjects.

In 2011 and in subsequent years. regional authorities should be prepared to tighten fiscal conditions in order to restore balance in the budget system of the country and reducing the federal budget deficit. to which the financial assistance is addressed to the lower levels of budgets.

Therefore. in the medium term budget policy in the sphere of intergovernmental relations will focus on: adjusting mechanisms to provide financial support to regions in order to enhance its effectiveness. creating incentives to increase own revenue base of the RF Subjects; improved delineation of expenditure commitments of state and local governments1.

Exploring the structure of the formation of expanded government revenues (Table 2) it may be noted that their volume largely depends on revenues from profit tax. tax on mineral extraction (MET) and the value added tax (VAT). as well as contributions to mandatory pension insurance.

Herewith. the dynamics of budget revenues in January-November of 2010 was largely based on revenue from foreign trade.

Revenue from mineral extraction tax (MET) and income from foreign economic activity over the 11 months of 2010 increased by 0.4 percentage points of GDP for each of those taxes. The grounds for high tax collection level were provided by the growth of global oil prices against the relevant period of 2009 (USD 75.9 per barrel against USD 56.7 per barrel). The positive effect of growth of global energy prices has been backed up by increase in the physical volume of production and export of hydrocarbons (average price of crude oil Urals from January to November reached 77.dollars per barrel. or 1.3 times higher than in the last year; in November compared with October 2010 price for Urals oil grew by 3.5 per cent to 84.4 dollars per barrel due to the heating season and the onset of cold weather in Europe)2.

Growth in world energy prices in 2010 contributed to the sustainable increase in export duties on crude oil and petroleum products. except for their slight decline in July and October 2010. however.

reduction of the duties paid in those periods did not lead to a marked reduction in revenue of the expanded government budget in January-November 2010.


11 months of 2010 11 months of 2009 percentage points of the GDP Level of tax burden (1+2+3) 31.4 30.1 +1.Revenues from taxes (1). including: 19.6 20.3 -0.Corporate profits tax 3.9 3.2 +0.Individual income tax 3.7 4.1 0.Single social tax* 0** 2.0 VAT 5.4 5.3 +0.Excise duties 1.0 0.9 +0.1 http://bujet.ru/article/107963.php 2 Report of the Ministry of Economic Development of Russia On the current economic situation of the Russian Federation in January-November 2010.

STATE BUDGET Table 2, contd Change.

11 months of 2010 11 months of 2009 percentage points of the GDP Severance tax 3.1 2.7 +0.Insurance contributions for mandatory 4.9 3.3 +1.pension insurance (2) Revenues from foreign economic activity (3) 6.9 6.5 +0.*without taking into account insurance contributions for mandatory pension insurance.

** Starting from 2010. the single social tax has been transformed into insurance contributions which are credited to extra-budgetary funds.

Source: The Ministry of Finance of the Russian Federation and Rosstat; Gaidar Institute assessments.

In January 2011 the rate of export duty continued to grow and amounted to 317.5 dollars per ton against its December value of 2010 (303.8 dollars per ton). Export duty on crude oil from fields in East Siberia and the two fields in the Northern Caspian Sea has risen from January 1.

2011 to 117.5 dollars per ton to 108 dollars per ton in December 2010. export duties on light oil products from January 1. 2011. increased from 217 dollars per ton to 226.2 dollars per ton. while heavy oil - from 116.9 dollars per ton to 121.9 dollars per ton. A further increase in export tariff rates will contribute to the replenishment of the revenue component of the budget1.

Following a tangible increase of oil and gas revenues. both in absolute and relative terms. other than oil industries also demonstrate a trend of revenue growth (Table 2).

The share of revenue from corporate profit tax in the expanded government budget within eleven months of 2010 has increased by 0.7 percentage points of GDP as compared with the relevant period of preceding year. Over January-March 2010 the dynamics of revenue from that tax was less than the indicator of the relevant period of 2009. but in April the trend has changed. Most likely. this dynamic has developed under the influence of the relative improvement of the RF general economic background. Thus. for 11 months of 2010 the real sector has received the financial result of 5.trillion rubles. which is 50 per cent higher than its value for the corresponding period in 2009.

whereas the share profitable organizations in the total number of organizations in comparison with the period of 2009 increased by 3.4 percentage points and amounted to about 70.3 per cent2.

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