Page 50 - bne IntelliNews Russia Country report May 2017

on the indexation of salaries – this could cause an upward revision of expenditures.
Bankers are concerned that this is not so much related to budget stability, but to the growth : Alfa says that preserving the budget balance will remain a priority for the cabinet after the presidential election, thus higher expenditure would simply cause a stronger increase in the tax burden after 2018, which would limit economic growth in the longer run.
The Finance Ministry submitted to the government proposal for the budget rule set cut off price on it is set at $40 per barrel , inflation-adjusted world currencies, according to Finance Minister Anton Siluanov. This is a very conservative position. Former Minister of Finance, Chairman of the Center for Strategic Research Council Alexei Kudrin in April wants to take a more aggressive position and increase the cut off to $45, which would allow for more spending but would increase the vulnerability of the Russian economy to oil price shocks. Russia’s overall macro strategy is being debated at the moment and remains hotly disputed so none of these ideas are fixed in stone yet. Putin is expected to rule on the final version in late May.
Putin suggests fiscal policy that broadens the scope of public sector wage indexation, which is likely to cost 0.1-0.2% of GDP and be back-loaded. At a meeting with the government, President Vladimir Putin suggested that the scope of public sector wage indexation be increased to cover those not included in the May Decrees. The government has been asked to provide estimates of the resources required, and the scale of indexation consistent with federal and regional budget sustainability. The nominal federal spending freeze which has been promoted as a guideline for fiscal consolidation in 2017-19 is likely to be amended, as suggested in the draft budget proposals (for more details, see our Fiscal Policy story). The draft budget pencils in a RUB 0.3tn increase in spending vs. the RUB 1.1tn of additional revenues. Downside to the revenue projections could come from a shortfall in SOE dividends, which the Ministry of Finance still thinks are going to be paid according to the original budget law, according to Vedomosti. The cost of the wider scope of public sector wage indexation might reach 0.1-0.2% of GDP in 2017. The cost might turn out less if the indexation is back-loaded into 4Q17. The scale of indexation is uncertain at this point but our estimates use an assumption of 5-10%.
Russia’s annual global military ratio of government defence spending to GDP in Russia reached 5.3 % last year , according to areport from the Stockholm International Peace Research Institute (SIPRI). Fresh figures from the Russian Gaidar Institute for Economic Policy (IEP) indicate that defence spending rose to 5.7 % of GDP last year. Russia's finance ministry figures also show that the defence-spending-to-GDP ratio rose to 4.4 %, the highest level since the early 1990s.
Russian State armament programme may increase spending. President Vladimir Putin held his semi-annual update meetings with the military and arms manufacturers and Vedomosti reports that RUB17tn might be earmarked for 2018-25. Putin’s meetings with the military and arms manufacturers to review progress on the State Armaments Programme (SAP). The agenda also includes discussions on the next phase of SAP (2018-25), reports Vedomosti. According to the paper’s sources, the budget for the latter has been tentatively agreed at RUB17tn. The current SAP was adopted in 2010 and envisaged
50 RUSSIA Country Report May 2017 www.intellinews.com