A Peak Inside Russia's Budget Process

Russia does more than an annual budget as its process also includes further planning for the following two years, making it an overall three-year plan. The plan also occurs within Russia’s overall Strategic Plan for 2030, which in some areas go well beyond, like Putin’s recent proclamation that developing its Far East will occupy the rest of this century. Here’s the short introduction into the much longer discussion on the budget, the latter would be very nice to read about but we’ll take what we can as it will teach us a few things.

Vladimir Putin: Dear colleagues, good afternoon!

The Government is finalizing the draft federal budget for the upcoming three-year period-2024 and the planned period of 2025 and 2026.

I would like to emphasize that the current economic situation is generally stable and balanced. My colleagues and I discuss this constantly, almost every day, both with the Prime Minister and with the economic bloc. Today we will meet again and talk with Mikhail Vladimirovich [Mishustin] separately.

I would like to say right away that the situation is significantly better than previously estimated and predicted in a number of key indicators.

Let me remind you that back in April, GDP growth for the current year was expected at 1.2 percent. Initially, some negative figures were drawn for us, but then the forecast was corrected – we expected 1.2 percent, but in fact we have already exceeded this target, and by the end of the year, GDP growth may reach 2.5 percent, or even more – 2.8 percent.

Consumer demand is increasing with good dynamics. Industry is steadily increasing, primarily due to manufacturing industries.

Even despite the effect of last year's high base, investment in fixed assets continues to grow-plus 12.6 percent year-on-year.

I have already said that the overall situation is also stabilizing with regard to the implementation of the current federal budget. In August, it was once again executed with a surplus. Yes, in general, so far-starting from the year-there is a small deficit, but in August already with a surplus, and not for the first time.

At the same time, it is important that non-oil and gas revenues are significantly higher than last year's figures. In turn, oil and gas revenues of the budget in July-August recovered to approximately the level of last year, and taking into account the situation on world markets, active growth continues.

Of course, it is obvious that now one of the main problems is related to the acceleration of inflation. The main factor here is clear – this is the weakening of the ruble, and it is necessary to clearly understand its causes and make appropriate decisions in a timely manner, without delay. I am confident that the Government and the Central Bank will work professionally and, importantly, in a coordinated manner.

In general, we can say that the stage of recovery of the Russian economy has been completed. We have withstood absolutely unprecedented external pressure, the sanctions onslaught of some ruling elites in the so-called Western bloc – some ruling elites in certain countries that we call unfriendly. Russia's GDP has reached the level of 2021, and now it is important to create conditions for further stable and long-term development.

In this regard, the new federal budget should be objectively calculated and drawn up based on national priorities, our national interests, and strategic and current plans in all key areas. And, of course, first of all, it is necessary to guarantee a clear fulfillment of all social obligations of the state to people.

I know that the Government has already done a lot of work, which is simply colossal in its scope and complexity. The draft budget has been prepared, and overall, in my opinion, it turns out to be balanced. I am aware of all the disputes within the Government on these issues, but there is not much time left before a package of relevant bills is submitted to the State Duma. It is necessary to use this budget effectively in order to "tighten up" and clarify some details.

Traditionally, the discussion of the draft budget will begin with the macroeconomic forecast on which it is based, and with a general assessment of the challenges for economic development.

Please give the floor to Maxim Reshetnikov . Maxim Gennadievich, please. [My Emphasis]

Mr. Reshetnikov is Russia’s Minister for Economic Development. There’s more I might have highlighted; for example, Putin’s desire to have the budget be as close to neutral deficit/surplus-wise as possible. His thinking appears to be that proper planning, allocation of resources and effective/efficient management constitutes proper governance negating the need for deficit spending. You’ll have noted there was no mention of defense or military spending; rather, the emphasis was clearly made about the “fulfillment of all social obligations of the state to people”—something no Western government prioritizes any longer.

Another important aspect that makes Russia’s budget quite different from those of Western nations is the great number of public utilities it operates that are hybrid entities operating in both the public and private economic spheres where they receive funds from the budget but return funds to the budget in the form of both taxes and revenues. For example, Putin briefly noted oil and gas revenues above, but there are quite a few others. It must also be noted that the regions and cities have their own separate budgets. A good example of these differences will become visible when the article on the Amur Region gets published, which was supposed to get included with those about Far Eastern Development.

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