The Finance Ministry has sequestered half a trillion roubles from the budget, all on its own.
The Finance Ministry will unofficially sequester 2009 budget spending by 6% to 7% without any public announcement or discussion. As instructed by Prime Minister Vladimir Putin on December 12, the Ministry informed the other ministries and government departments that their spending limits for 2009 were cut back to 85% of the initially budgeted amounts - with the exception of norm-related items, which make up half of the budget. This approach will enable the Finance Ministry to have 500 billion to 600 billion roubles at the beginning of 2009 (1.5% of GDP) in hidden spending reserves.
Yesterday, the Finance Ministry published papers read at a December 19 meeting in the ministry that dealt with the end of the fiscal year, and the main arguments of the speakers, including Deputy Head of the Federal Treasury Dmitry Grishin. The end of the year is traditionally the most difficult period for ministries - main administrators of budget funds have to draw up spending schedules; the Treasury, to prepare and issue notices; and the Finance Ministry, to prepare orders concerning the budgeting process that take effect January 1, 2009. Still, the paper summaries were definite: the government decided to cut a considerable part of 2009 budget spending by 15%.
The unofficial hold on part of the budget, based on Finance Ministry documents, is being conducted on Prime Minister Vladimir Putin's order VP-P13-7336 of December 12. According to the order, budget spending limits for 2009 will be established by the Finance Ministry "at 85% of the allocations earmarked for 2009 for the appropriate administrators," with the exception of "standard allocations." The latter are budget allocations regulated by tariffs or existing allocation rates. They include budget expenses on budget-to-budget transfers, payment of costs regulated by state tariffs, and payroll for public-sector workers.
Previously, the main administrators of budget funds set the limits by routine procedure - as a rule, these were satisfied 100%. Budget-to-budget transfers and standard costs make up 50% to 55% of the spending by the main administrators. Outside their limits, the administrators may not conclude contracts, carry out work, or pay bills.
Therefore, an unofficial sequestration, which will not be legislatively formalised, will affect 6% to 7% of budget spending for 2009, or 9.024 trillion roubles. Undistributed funds (500 billion to 600 billion roubles, or 1.5% of GDP) will be neither a budget surplus nor savings made by the main administrators of budget funds: they will be the Finance Ministry's reserve to be handled in the same way as the Reserve Fund (3.6 trillion roubles, or 9% of GDP).
The jury is still out on whether these sums will be made available to the Finance Ministry. The 2009 budget planned a surplus of 1.9 trillion roubles, but the budget and the oil and gas contribution to it (2.5 trillion roubles) were calculated on the assumption that oil prices would be $95 per barrel (the average annual oil price in 2008). "Proceeding from the current earnings, it is estimated that 2009 will see a budget deficit of 3.5% of GDP, and the government is unlikely to meet it in any significant way," Yelena Lebedinskaya of the Group of Economic Experts told Kommersant. According to Lebedinskaya, because the government announced a series of measures to support the economy following the adoption of the 2009 budget law, actual spending will be more than planned, since it includes transfers to the regions and to the Pension Fund, state guarantees, etc. "The Finance Ministry has little else to cut, apart from investments. At best, a review of state spending will help to redistribute it, but not retrench it," Ms Lebedinskaya said. This is unlikely to be a deliberate pro-cyclical economic policy of the Putin government (cost reduction at crisis time, and growth when things look up). Simply the White House and the Finance Ministry want an extra reserve to hedge against expense underfinancing should tax and customs receipts drop dramatically.
Government sources have repeatedly spoken of the White House's intention to cut at least some spending by 15%, but none of them claimed that it was a done deal. Mr Putin last mentioned such a cut, as being under discussion, on December 17, 2008. It was assumed that a basic decision on cuts, above all in state investments, was to have been taken yesterday at a meeting of the commission for budget projections - but the commission failed to meet on December 23 and no new definite date was set. Mr Putin's instructions, unlike government decisions and resolutions, are seldom published. If it were not for the Finance Ministry's information, the partial budget hold would have been spotted only from budget fulfilment figures no earlier than February 2008.
The Finance Ministry does not officially comment on documents. However, RIA Novosti sources at the Ministry explained that the reduction of spending limits was due to a reassessment of state expenses - evidently the main administrators of budget funds had no time to reassess them following a fall in prices for cement, construction, and other services and goods, and it was decided to use July estimates with a 15% discount. However, the limits have been cut by one-seventh for the whole of 2009 - an adjustment at mid-year will require the main administrators to repeat the budget procedure. Judging from the Finance Ministry's materials, the sequestration will be approved on December 26.
Dmitry Visloguzov