Russia’s regions expect a RUB1.1 trillion budget deficit at year-end

Russia’s regions expect a RUB1.1 trillion budget deficit at year-end
Russian regional town of Tobolsk / bne IntelliNews
By bne IntelliNews October 19, 2017

The head of Russia’s Audit Chamber, Tatiana Golikova, reported that the regions are expecting to post a RUB1.1 trillion ($17bn) budget deficit at the year-end — significantly higher than the MinFin’s estimate of a RUB15bn deficit.

“We have two concerns in relation to these figures. Firstly, the regional budgets implemented in October 2017 were formed with a surplus of RUB0.5 trillion. Thus, the RUB1.6 trillion regional budget deficit forecast for the fourth quarter of 2017 implies a substantial increase on the expenditure side. Combined with the strong retail trade and lending figures, the acceleration in regional budget expenses will create additional inflationary risks,” Natalia Orlova, chief economist at Alfa Bank said in a note.

This is not the first time that the Audit Chamber has questioned the finance ministry. The chamber also took the ministry to task over its overly optimistic estimates of the amount of dividends the government can collected from the largest state-owned enterprises (SOE) recently.

The Audit Chamber is supposed to scrutinise the government accounts and hold ministries to task, but it has been largely silent for the last 20 years. However, recently the chamber has become a lot more vocal and active, suggesting that as part of the overall reforms to the financial system the chamber is starting to play its original role in earnest. And the criticisms of MinFin estimates are starting to unsettle observers a little.

“Secondly, the significant difference between regional forecasts and the MinFin’s estimates indicates that the 2018-20 federal budget draft may be overly optimistic,” Orlova added. “The issues stem not only the MinFin's optimism on the income side, in particular the expectation to almost double future dividend receipts from state companies, but from the fact that the current news on regional budgets may add risks to the expenditure side.”

 

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