BOFIT Viikkokatsaus / BOFIT Weekly 2016/50

Russia's lower and upper houses of parliament accepted the government's proposals for 2017–2019 federal budget total revenues and expenditures. The federal budget accounts for roughly a half of all general government revenues and spending (consolidated budget). If the relatively cautious budget assumption of $40 a barrel for Urals crude holds, budget revenues over the next three years would stay at slightly over 15 % of GDP, i.e. at the low level of this year (does not include the proceeds from Rosneft share sale).

Federal budget spending would contract slightly even in nominal terms, with its share of GDP falling below 19 % next year. With this, the budget deficit begins shrinking notably from this year and should fall to around 3.2 % of GDP next year. Two-thirds of next year's deficit would be funded out of the Reserve Fund and the National Welfare Fund. Over half of the deficit in 2018 would be covered from the National Welfare Fund.

If the oil price exceeds the assumed price by $10, it would add roughly 1.5 percentage points of GDP to revenues. If conditions permit, finance minister Anton Siluanov said, the federal spending could be increased next year through e.g. higher subsidies to the economy.

Government defence spending is covered entirely by the federal budget. It should shrink even in nominal terms from 2015–2016, although much room has been created for the defence industry to take on government-guaranteed bank loans. The current plan also calls for cuts in spending on domestic security and order (currently 95 % funded out of the federal budget).

After the defence spending boom of past several years, transfers to the Pension Fund will again become the largest single federal budget spending category by far – nearly a quarter of all spending, even if the rise has been quelled by working pensioners remaining without inflation adjustments. Spending from the Pension Fund and other social funds will, especially next year, rise notably faster than general government spending overall.