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Besides, in 2006 a number of decisions were made concerning the rules for managing the resources of the RF Stabilization Fund. Thus, in November the Minis try of Finance announced that before 1 December it planed to present the concept of a future generations fund. This will be done within the framework of the Minis trys modeling of Russias strategy for the use of oil and gas resources and the preparation of the concept of a future generations fund. It is intended that the Sta bilization Fund should be divided into two parts, to be invested in securities in ac cordance with two different strategies. It these strategies that are going to deter mine the specific distinctive features of the two parts of the Fund, one earmarked for spending in the event of declining oil prices, while the other is to remain in vested in a sufficiently diversified portfolio of securities. As for the list of assets Section Monetary and budgetary spheres available for investing in, the RF Ministry of Finance is planning to expand it and to place the Funds resources accumulated in excess of the reserve part into the less conservative assets. It should be reminded that presently it is allowed for the Funds resources to be placed only in the securities issued by a number of devel oped countries with the highest credit ratings as established by the leading rating agencies. At present the Stabilization Funds resources are deposited with the RF CB: 45 % in USD, 45 % in euro, and the other 10 % in UK pounds.

The volume of the investment fund in 2007 may exceed 160 billion roubles, whereas its size for the year 2007 is planned at the level of 95.8 billion roubles, in cluding the saved interest payments resulting from the redemption of the remaining part of the RFs debt to the Paris Club ahead of schedule, the final settlement against which took place in July August 2006, as well as the the investment funds resources unspent in 2006 (approximately 59 billion roubles), which will be carried forward to the 2007 investment fund, its total amount being potentially in excess of 160 billion roubles.

During the year, the indexation of salaries in the budget funded sphere was carried out. Thus, according to the information released by the Ministry of Finance, the indexation of the salaries of the budget funded employees in 2005 2007 will result in their remuneration in real being increased by 1.5 times. In 2007 the sala ries of this category of employees will be raised by 15 % from 1 September. The total amount of allocations to this indexation will be approximately 127.8 billion rou bles.

Also in 2007, much attention was paid to the issues of social support to the population. In particular, in March the Ministry of Finance responded to the pro posals put forth by the RF President in his presidential message to the RF Federal Assembly and aimed at supporting maternity and childhood. As a result, in 2006 a corresponding law was adopted, which came into force from 1 January 2007. Ac cording to Minister of Finance A. Kudrin, a total of 3040 billion roubles per annum will be required for these measures to be sustained. In this connection, for the im plementation of all the measures designed to provide additional social support, a certain adjustments will have to be introduced in the three year financial plan.

And finally, during last year the forecasts of the basic parameters of the RFs debt policy in the period until 2009 were published. According to these data, the total RF government debt from 2007 will begin to grow in nominal terms, while con tinuing to decline in respect to GDP. As stated by Minister of Finance A. Kudrin, the government commission for budget projecting on the whole has approved the RFs debt policy for the years 2007 2009. Thus, the government debt in 2007 will be come as high as 2 trillion and 878.9 billion roubles, in 2008 3 trillion and 30.1 bil lion roubles, in 2009 3 trillion and 246.4 billion roubles. On the whole, in 2007 2009 the government debts volume will be increased by 145.1 billion roubles. The forecasted volume of the RFs domestic debt invested in government securities as of the end of 2007 will amount to 1 trillion and 238.7 billion roubles, as of the end of 2008 to 1 trillion and 445.6 billion roubles, and as of the end of 2009 to 1 trillion RUSSIAN ECONOMY IN trends and outlooks and 644.2 billion roubles. The total RF government debt in 2007 will be 9.78 % of GDP, in 2008 9.16 % of GDP, in 2009 8.71 % of GDP.

2.2.6. The 2007 federal budget The Law on the 2007 federal budget was developed on the basis of the fore cast of the RFs socio economic development in 2007 prepared by the RF MEDT (see Table 15). Within this forecasts framework, two alternative scenarios of the RF national economys development were considered. The first is inertia based and reflects the Russian economys development in a situation of stabilized volumes of hydrocarbon exports, being characterized by a diminishing competitive capacity of domestic product and its substitution with imports, alongside a continuing deterio ration of domestic products competitive capacity in terms of pricing. The fore casted preconditions in this scenario imply a relatively unchangeable situation on the international markets of energy resources the fall in the price of Urals from $ 63 per barrel in 2006 to $ 61 per barrel in 2007. In this case, the growth of exports in terms of value is forecasted to be at the rate of 0.4 %, while oil production growth will be by 1.2 %. Under this scenario, the growth rate of GDP by 2007 should de cline to 5.0 %.

The second scenario is oriented to a relative improvement of the competitive capacity of Russian businesses and to the intensification of structural shifts due to the implementation of a set of measures designed to enhance economic growth.

Within the framework of the forecast in accordance with this scenario, the behavior of oil prices will be similar to that in the first one, whereas the growth of exports is forecasted to be at the rate of 1.4 %, and GDP growth at the level of 6.0 %. This scenario is the basic one for the development of the federal budget for 2007 and the prospective financial plan for the period until 2009.

At the same time, for purposes of assessing the realistic value of the main macroeconomic indices for the year 2007, the IET calculated several scenarios of the development of the RFs economy in 2007 on the basis of a structural econo metric model of the Russian economy. The exogenous parameters applied in that model were the prices of Brent, the index of investments in fixed assets, the growth rate of the populations incomes in real terms, and the growth rate of money supply 2.

Within the framework of the model, three scenarios of the RF economys de velopment in 2007 were considered. Under the first scenario, the average per an num USD / euro exchange rate was 1.30, the price of Urals $ 40 per barrel, the growth rate of money aggregate 2 25 %, the growth rate of investments in fixed assets by the years results 10 %. The second scenario is more optimistic and implies a slight decline of oil prices ($ 50 per barrel). Besides, in accordance with the second scenario, the growth rate of investments in fixed assets is plotted at the level of 12 %, the USD / euro exchange rate by the end of 2007 is to remain at the level of 1.30, and the growth rate of money supply 30 %. Scenario 3 is the most optimistic of all and implies the preservation of high prices of Urals at the level of $ 60 per barrel in 2007. Also, in accordance with the third scenario, the growth rate of Section Monetary and budgetary spheres investments in fixed assets will be at the level of 13 %, the USD / euro exchange rate by the end of 2007 will remain at the level of 1.30, while the growth rate of money supply will be 35 % Table Main forecasted indices of the RFs socio economic development in 2006 and RF MEDT IET 2006 2007 Variant I Variant II Scenario 1 Scenario 2 Scenario Exogenous factors Price of Urals, $ per barrel 63 61 40 50 Oil extraction, million tons 482* 488 492 Gas extraction, million tons 648* 652 654 Oil exports, million tons 255* 261 264 Gas exports, billion m 200* 193 USD / euro exchange rate 1.26 1.29 1.3 1.3 1.Growth rate of investments in 13.5 7.6** 10.4** 10.0 12.0 13.fixed assets, in % Forecasted values GDP growth in real terms, in % 6.7 5.0 6.0 4.5 5.2 5.GDP, trillion roubles 26 621.3 29 857 30 388 30 Growth rate of CPI, in % 9.0 6.58.0 8.2 8.4 8.RRb / USD exchange rate, in 27.1 26.5 27.3 27.1 26.real terms Exports, $ billion 304.5 305.7 308.8 284 299 Imports, $ billion 163.9 193.8 199.3 186 190 Growth rate of retail turnover, 13.0 9.3 10.5 5.1 7.2 9.in % Growth rate of IPI, in % 3.9 2.8 4.2 2.5 3.2 3.Growth rate of population money incomes in real terms, 10.0 8.2 10.2 5.8 7.1 8.in % Tax revenue of RF consolidated 32.5 32.4 32.7 32.budget, in % of GDP estimation.

** in the RF MEDTs forecast this index is not exogenous.

It can be seen that in the IETs model the values of exogenous parameters un der Scenario 3 are more compatible with the parameters forecasted by the RF MEDT. At the same time, it is in Scenario 3 that the IETs model yields the fore casted values of socio economic indices which are close to the parameters taken as the basic ones in developing the budget for the year 2007. The differences un der the other two scenarios are more dramatic. The realistic value of the precondi tions assumed within the models framework is confirmed by the forecasted data on the sum of taxes in the RF consolidated budget. Thus, within the framework of the three scenarios, they amount to between 32,4 % and 32.9 % of GDP, against 32.5 % of GDP in the results of 2006. In view of the slowdown in the growth rate of tax revenues against the backdrop of the high growth rate of the national economy as seen by the results of 2006, these differences can be explained quite easily.

In our opinion, the most important shortcoming of the macroeconomic fore cast on which the 2007 federal budget is based, especially considering the fore casts time horizon (2007 2009), is that the two scenarios differ only slightly. In the final analysis, the slight variations in the forecasts resulting figures display no RUSSIAN ECONOMY IN trends and outlooks qualitatively different features. At the same time, one qualitatively different scenario (crisis based) is not considered at all. Our estimations have made it possible to ob tain sufficiently cautious values relating to the behavior of the RF economys basic macroeconomic indices both when oil prices are high and when they are low. Thus, in our scenarios a fall in oil prices, in fact, implies that events will be developing ac cording to the worst variant, and the authorities must be prepared to resort to measures designed at least to somewhat softened the negative consequences noted by us. As for the situation of high oil prices, all the scenarios appear rather conservative, indicating the lower margin of the possible variants of the national economys development.

Now we are going to analyze directly the parameters established by the law on the 2007 federal budget. The sums of revenue of the RF federal budget in 2006 and 2007 are shown in Table 16.

Table The basic characteristics of the RF federal budgets revenues in 2006 and 2006 approved 2006 fact 2007 law million rou % of million rou % of % of GDP million roubles bles GDP bles GDP Revenue 6 146 277.6 22.6 6 276 298.6 23,6 6 953 317,2 22,including:

tax revenues 5 873 279.5 21.6 5 901 974.6 22.2 6 698 042.8 21.non tax revenues 272 998.1 1.0 374 323.6 1.4 255 274.4 0.GDP 27 220 000 26 621 300 31 220 * in the 2006 prices.

On the basis of the data presented in Table 16 it can be concluded that in 2007 the forecasted revenue of the federal budget in absolute terms may be mark edly higher than both the indices initially stated in the budget for 2006 and the ac tually registeted values. At the same time, if we take the relative indices (in % of GDP), the revenue of the 2007 budget would become somewhat lower than both the indices approved by the law on the 2006 budget and the values demonstrative of the budgets actual execution (23.6 % of GDP). The decline of the share of reve nues in the 2007 budget in % of GDP against the actual budget execution in can be explained by the changes introduced in the RF tax and budget legislation.

However, the resulting decline was partially compensated for by the revision of the basic macroeconomic indices of the RF, as well as by the influence of some other factors.

While taking a look at the main growth factors influencing the forecasted mac roeconomic indices of the RF, we should point to the growth of GDP; the changing volumes of imports and exports; the increasing profits of enterprises, the volumes By Law On the 2006 Federal Budget as of 1 December 2006.

Including: (1) the profits and income taxes; (2) the social taxes and contributions; (3) VAT and ex cises on the commodities sold in the territory of the RF and imported into the territory of the RF ; (4) the taxes on aggregate income; (5) property taxes; (6) taxes, levies and regular fees for the use of natural resources; (7) State duty; (8) arrears and settlements in respect of abolished taxes, levies and other mandatory payments; (9) revenues from foreign economic activity.

Section Monetary and budgetary spheres of production and sale of excisable commodities, the volumes of the extraction of mineral resources and other quantitative parameters; the changing prices of Urals and the export prices of natural gas.

The main innovations in the taxation sphere that influenced the decline in revenues in % of GDP by comparison with the indices of the 2006 budget execution were the switchover from the permitting to the advising procedure for the refunds of VAT being paid to exporters in compensation for their payment of VAT on stock supplies; the diminishment, by taxpayers, of their tax base for the tax on profit of organizations by the amount of losses incurred by them in the previous years; the shortened periods for writing off the costs of research and development against the tax on profit of organizations; and the establishment of a downward coefficient for the rate of the tax on extraction of mineral resources, designed to promote fur ther development of oil deposits at the final stage of exploitation, and the introduc tion of a zero rate of the tax on extraction of mineral resources for new oil deposits.

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