BOFIT Viikkokatsaus / BOFIT Weekly Review 2020/19

Finance minister Anton Siluanov indicates that federal budget expenditure would rise this year by roughly one percent (or possibly even closer to two percent) of GDP from the spending planned so far even in environments with declining budget revenues. Spending reallocations continue to evolve at the same time. More federal money will be targeted to the economy, particularly the small and medium-sized enterprise (SME) sector. SMEs in branches hard-hit by the corona impacts are eligible for money to cover payroll and other running costs if they e.g. commit themselves to retaining employees (at least 90 % of March level). The hard-hit list identifies over 70 branches suffering from corona impacts.

More funds will also be devoted to social assistance. Families with children will be eligible for a new form of support and those who became unemployed and registered for unemployment after the beginning of March will receive the maximum unemployment benefit. More funds will be made available for healthcare and corona fight including special wage supplements (combat pay). On the other hand, some investment projects and state wage reforms have been postponed. Several of president Putin’s national projects would see some of the funding delayed, basically on those parts of the projects that have yet to begin.

Other government budget sector sections, i.e. state social funds and regional budgets, will receive additional transfers from the federal budget to, among other things, cover lost revenues. The deficit ceilings on regional budgets will also be relaxed. Scheduled debt repayments of regions to the federal government will be postponed for 2021−2029, and inter-regional lending will be permitted.

The state social funds will lose revenues as wage-based social taxes of employers will be halved to 15 % for SMEs. The move will give businesses relief this year in an amount equivalent to slightly less than 0.3 % of GDP. No other major tax changes are planned for now. However, several tax payments will be deferred for three to six months, excluding value-added taxes, excise taxes and natural resource extraction taxes (as well as export tariffs which are not actually defined as taxes). The deferrals are available for SMEs and firms in hard-hit sectors, as well as large enterprises that have experienced drops in revenues greater than 10 %. The payment deferrals do not apply in all respects to foreign-owned enterprises. Special oversight will be applied to firms considered systemically important for the nation. Over 1,100 companies have been placed on the list of systemically important firms based on recently revised criteria. Regions have also made their own lists of critical firms.

Federal, regional and municipal government real estate landlords are postponing rental payments for all SMEs and larger firms in hard-hit branches. Private landlords renting commercial real estate (other than residential properties) have been obligated to defer payments of tenants in hard-hit branches. To help participating private landlords, regions are to grant them relief from property taxes. Undercapitalisation (net assets below capital) of joint stock companies and other limited liability corporations will not be taken into account when assessing sufficiency of capital. New bankruptcy proceedings are mostly frozen.

Banks are allowed to retain on their balance sheets the valuations of shares, debt securities and foreign currency items as at the beginning of March. The general loosening of regulatory rules applicable by banks also covers e.g. loss reserves, credit quality and related collateral for a very large part of corporate and household loans granted, as well as their possible restructurings. Authorities have also set up separate deferral programmes for bank debt repayments that are supported by regulatory easing, government interest-rate subsidies and low-interest CBR loans to banks. Deferral programmes are available for households that have suffered income losses of more than 30 %, as well as SMEs and enterprises in hard-hit sectors. A separate deferral programme is also under consideration for large corporations.

Several programmes to provide inexpensive bank loans have been established that provide support through the three ways mentioned above, as well as via loan guarantees from the government or state-owned Vneshekonombank. The purpose of these programmes is to foster lending for housing or provide credit to SMEs. In addition, firms in the hard-hit branches and firms listed as systemically important are eligible for loans to cover payroll and other running costs.

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