The Finance Minister reported during his speech at the State Duma that Russian budget revenues had increased 36.1% from January to June of this year, but remain 4% below revenues in the first six months of 2008. "Revenue has not yet reached pre-crisis levels," Alexei Kudrin said.
The budget deficit amounted to 2.3% of GDP, based on data from the first six months of the year.
Despite the economic downturn, the amount of credit in the Russian economy increased by 2% in the first six months of 2010, and is expected to increase by five to ten percent by year's end.
The government provided a great deal of support to private companies and industrial enterprises during the crisis. During the previous two years, 119 guarantees worth a total of 216.9 billion roubles were provided to key industrial enterprises, the deputy prime minister said. Since the beginning of this year, the government has provided 42 guarantees worth a total of 55.2 billion roubles, Mr Kudrin reported.
The finance minister also discussed the drought that has affected many Russian regions. Within a month, the government will determine the amount of aid needed in the regions affected by the drought, which will be provided through subsidies and loans with two percent interest rates, Mr Kudrin said. "Other measures will also be considered," he added.
Mr Kudrin also announced that next year the government would continue the same level of support for agriculture, despite the need to reduce the budget deficit.
Responding to questions by members of the State Duma following the report, Mr Kudrin said that the funds set aside during the recession to support banks would be also used to cover shortfalls in the Pension Fund.
"The amendments currently under consideration by the State Duma would redirect these funds toward other, more critical areas," explained Mr Kudrin. "For example, there will be a 149 billion rouble shortfall in the Pension Fund this year, and these funds will help resolve this and other urgent issues that arose this year," added the finance minister.
Report by Deputy Prime Minister and Finance Minister Alexei Kudrin at a plenary meeting of the State Duma on July 7, 2010 as part of the government's anti-crisis report on the first quarter of 2010
Good afternoon. I would like to inform the deputies about the implementation of the government's anti-crisis programme and measures to support economic growth and social stability in Russia. At this time I am representing the government. And all key ministers and deputy ministers are present with me. We will be ready to answer your questions.
In November 2008, the government adopted its first anti-crisis plan consisting of 55 points. Now they are practically all fulfilled. Another plan is currently in place, which we have adopted and which will last till the end of 2010. All these steps are aimed to support the economy in conditions of recession.
Some of them cover wide ground and are of lasting impact. For example, last year we cut the profit tax from 24% to 20%. This anti-crisis measure will not only yield results this year, but will also play a big role in subsequent years. The early results are already in. Economic growth during the first five months of this year was 4% year-on-year. In May, it increased 5.8%. Part of this growth is attributed to increased company inventories and so growth cannot be said to be steady as yet.
An increase in real income for the population in May has been an important factor. It rose 2.8% year-on-year. In May, investment in basic capital rose 1% month-on-month and 5.5% year-on-year. In May, exports increased 40.5%. Industrial production in May increased 12.6% year-on-year and 10.3% in the first five months of 2010, compared with the same period last year. As you can see, the trend is positive, and the best performance came from machinery, equipment, means of transport and building materials production.
This May, agriculture grew 3.1%, compared with 1.8% in May of last year. This sector has been demonstrating steady progress during the crisis, partly thanks to state backing, including from the federal budget.
Budget revenue - without the unified social tax - fell in comparable terms by 30% year-on-year in the first six months of the crisis year 2009. That was a serious and shocking drop in federal revenues. But we managed to compensate for it with reserves and not only maintained spending levels, but even increased spending in some programmes through anti-crisis measures.
In the first six months of this year, budget revenues rose 36.1%. But they are still 4% below what they were in the first six months of 2008. We have not yet brought revenues to the pre-crisis level. The 36% increase in the first six months of 2010 is also due to a rise in the average oil price, which is taken into account when calculating revenues. During this period it was $75.9 per barrel. In the first six months of last year it was $50.8. The massive increase in revenues is explained by rising oil prices.
The budget deficit in the first six months of this year was 2.3%. This is because many separate sources contributed revenues during this period: the last payments of the unified social tax for last year, follow-up contributions, and the Central Bank's reported large profits. We had large receipts from managing the reserve funds: over 200 billion roubles. No similar sum can be expected in the second half of the year. Next year's receipts from fund management will not be as large. So we are expecting a deficit of 5.4% before the end of the year.
Currently, we are adjusting our strategy to longer-term measures to support the Russian economy. One-off and short-term anti-crisis steps are taking the back seat. The president's budget message confirms this. So we are now refocusing our efforts on supporting the economy for the long term, both with the efforts underway and with those scheduled for next year's budget.
Fiscal measures and fiscal packages to boost demand work only for the short term. It is now an established truth that if we keep up government demand with large packages, it can maintain economic growth only for a short period of time - say, a year. If this support stretches into two or three years it depresses growth as inflation increases and the rate of exchange stagnates, forcing the state to increase its borrowing on the markets, which in turn undercuts corporate borrowing. The state, in this case, becomes a big borrower on the resources market. So our objective is to cut the deficit in the coming years.
The president's budget message set the task of cutting the budget deficit in half by 2013, compared with the crisis year 2009. If it was about 5.9%, then it must be limited to 2.9% in 2013. Today these deficit-cutting measures must be on our mind.
Other countries have their own experience. Most of them, with a gross domestic product as large as Russia's, such as Germany or Italy, are planning to cut their deficits 80% through reductions in spending and 20% through higher taxes. Russia will have to use a similar proportion, it will be calculated when next year's budget is drafted.
The three-year budget already provides for cutting the deficit to 4% in 2011, 3% in 2012 and 2% in 2013. But this is a tight schedule. I would like to repeat: if we fail to bring the deficit down to these figures, then a higher deficit within the next couple of years could slow down our economic growth and increase risks in the Russian economy.
In 2010, we are meeting the budget deficit mainly with reserve funds. Of the total deficit, 1.419 trillion roubles will be met from the reserve funds, and 1.058 trillion roubles from loans. The sum borrowed will be 1.5 trillion, and repayment, about 500 billion. Altogether, 1.058 trillion roubles as a balance between borrowing and repayment will also be used to cover the deficit. But starting next year borrowing will become the main source for meeting the deficit. And even if we continue this policy by cutting the deficit to 2% in 2013, debt service spending with the ongoing deficit will increase from 280 billion roubles this year to 587 billion in 2012. Debt service spending will increase 110%. We must therefore remember that a large deficit, in fact any deficit, involves increased debt service spending.
Conservative GDP forecasts are also an important stability factor for our budget system and government commitments, including social obligations. Oil prices are Russia's number one consideration. Our neighbours in Kazakhstan, for example, are basing next year's budget on an oil price of $65 per barrel, and in Azerbaijan, also an oil country, on $60. They take a conservative approach because such a budget is the basis of stability and observance of commitments. Russia met the world economic crisis with large state reserves, but we should remember that our economy is less efficient than others'. Europe and the United States account for the bulk of global GDP and the world economy depends heavily on the situation there.
With the Russian economy being less efficient, we should give more thought to its restructuring. Economic modernisation and increased productivity will above all rest on private investment and it is the government's task to make most of this by creating favourable conditions for private investors. Budget funds alone will not achieve modernisation, they are good only in supporting innovation projects, in launching, boosting them. The bulk of modernisation investment, or 80%, will be private. Today our concern is to create a positive environment for private investment.
Measures to support the financial system and preserve individual bank deposits have been effective. Unlike the United States and Europe, we did not allow the volume of loans to decrease. Last year, they remained the same and in the first six months of this year increased by 2%. The financial system has begun issuing more loans to the economy. We expect them to rise between 5% and 10% before the year's end.
Subordinated loans are part of this support. By June 1, overdue loans of the corporate sector and legal entities amounted to 827 billion roubles, and had increased by 6.5% as of the beginning of the year. For private individuals, overdue loans totalled 271 billion roubles by June 1, a rise of 7.5% as of the beginning of the year. With tension still persisting in the real sector of the economy and among individual borrowers, we should remember that the banks should be stable to offer more loans to encourage economic growth. For this reason, we have cut the interest rate on subordinated loans, with the State Duma now considering the bill.
One example: Out of 500 billion roubles taken out in earlier loans from the Central Bank, Sberbank has already returned 300 billion, and paid 62.8 billion roubles in interest. Thus, support from the banking system is, first, returnable and, second, paid off. And 75% of this sum paid to the Central Bank as a profit, will be contributed to the federal budget to compensate for our spending in support of the financial sector.
As of June 2, the government has provided 119 guarantees to strategic companies over the past two years, totalling 216.9 billion roubles. Forty-two guarantees valued at 55.2 billion roubles were issued this year. Various sectors have received massive backing. Through such guarantees, these strategic companies have obtained 374 billion roubles in loans. These resources played a substantive role in supporting the real sector. Anti-crisis measures used in a number of regions, especially those with single-industry cities that depend a great deal on the performance of large corporations, for example, Togliatti, where AvtoVAZ was supported, helped save hundreds of thousands of jobs.
Among key measures in 2010, overall anti-crisis measures account for 195 billion roubles. A considerable part of the allocated funds can be classified as anti-crisis funds. Currently, we are prioritising the decisions made by the presidential commission on modernisation and technological development. This year, 10 billion roubles will be allocated for these purposes.
The budget has provided 11 billion roubles to support the automobile industry, to stimulate the purchase of new cars with old ones traded in. Although only 345 million roubles have been used so far, we know that the rest will be spent before the end of the year. A total of 200,000 new cars will be sold as part of this trade-in programme.
Subsidies are being extended to aircraft leasing companies to compensate for the purchase of Russian-made planes to lease to Russian air carriers. This year, 2.7 billion roubles will be used for these purposes. We plan to contribute 10.7 billion roubles to the authorised capital of the United Aircraft Building Corporation.
Subsidies will be extended to Russian transport companies, shipping lines, and fisheries firms to compensate them for the interest on loans and specifically for the purchase of new ships. A property contribution to the United Shipbuilding Company will amount to 1.6 billion roubles and will be used to rehabilitate some of the plants, including the Amur Shipbuilding Yard. The authorised capital of Uralvagonzavod has been increased by 10 billion roubles.
The entities of the Russian Federation have also been given support from the federal budget. These figures were published and mentioned in reports.
Key measures relating to the commission on modernisation projects include: efforts to support the space programme, telecommunications, the medical industry, pharmaceutics, and planned and current high tech projects.
This year we have built additional housing. Housing for war veterans alone, according to this year's budget amendments, will amount to an additional 82 billion roubles. Demand for construction works will be maintained, and ordinary people, above all war veterans, will receive new flats.
To meet the deficit in the Social Insurance Fund, the government will spend 15.6 billion roubles this year. It is an anti-crisis measure. The Fund had no deficit before the crisis.
This year's additional contribution to the Pension Fund, due to fallen revenues, will total 149 billion roubles.
Small businesses need special attention. In 2010, we allocated the largest sum in years for support in this area: 24 billion roubles, of which 16 billion to be contributed by the Ministry of Economic Development on a tender basis as subsidies to the budgets of the regions. Vnesheconombank has granted its partner banks 32.8 billion roubles for loans.
Single-industry cities are supported with the relevant plans.
In this report I was unable to cover all of the issues that have been solved to ensure employment and support for major industries that contributed to economic growth. The government's report, however, has them all.
Thank you.