21 september 2011
Deputy Prime Minister and Finance Minister Alexei Kudrin speaks at the State Duma plenary meeting
Transcript of the speech by Alexei Kudrin:
Members of the State Duma, today I would like to report to you on the execution of the 2010 federal budget. The year 2010 was a special year in the history of the Russian economy, because it showed how quickly our economy can overcome a crisis, a truly deep crisis that struck the global economy, as well as Russia's. Growth rates in the global economy fell 0.6% in 2009, while in 2010 the global economy was up by 5%.
The Russian economy contracted by 5.9% in 2009 and grew by 4% in 2010. Thus, we have shown that the Russian economy is properly equipped for the fight against the crisis.
The economy was significantly bolstered by our budget policy, which helped combat the crisis in 2009 and 2010 as part of the anti-crisis programme. In particular, the government's anti-crisis activities and the government's authority with regard to special procedures for distributing budget resources designed to promptly overcome the crisis, ended in 2010.
Russia's exports grew due to an increased global demand. You may recall that Russian exports were down 35% in 2009 and up 32% in 2010, almost regaining their pre-crisis levels. Increases in exports added almost 1% in GDP growth to the Russian economy.
The average price of oil was 78 dollars per barrel in 2010, and 61.1 dollars in 2009. The effective rouble exchange rate became stronger and returned to its pre-crisis levels. This devaluation was of a temporary nature. The rouble regained its strength, which certainly helped improve imports. This helped our enterprises import technology and parts for high-tech equipment.
Despite on-going capital outflow, international reserves grew by $36 billion. The money supply increased by 31%. I would like to draw your attention to this. The money supply had been increasing in Russia with each year before the crisis too, but at much higher rates; 31% is exactly what our economy requires. With the GDP growing by 4%-7%, we need the money supply to grow at rates at or below 30%. This is precisely what helped the gradual and consistent reduction of inflation in Russia. Whenever we spent our excess oil reserves in Russia, it resulted in greater inflation rates. It was this moderate policy in 2010 that showed us that we can operate in a normal mode and still decrease inflation rates. They currently stand at 8.8%.
This year, the Central Bank will pursue a very balanced policy and will manage, along with the government, to keep inflation at or even below 7%.
However, 2010 was quite a difficult year within certain areas of the economy. We had a drought. Agricultural output was down by more than 11%, which affected the general growth rates. They could be well above the current 4%.
Still, investments grew by 6%. The investment-to-GDP ratio came out to 20.4%, which is about the pre-crisis level.
We managed to head off the decline in real personal income during the crisis. Real wages were up by 5.2%, and real disposable income rose by 4.1%.
Now, the key budgetary numbers. The budget was executed at 105.5% in terms of revenue as compared with the forecast, which is 18.5% in terms of the GDP. As for expenses, it stands at 22.5% in terms of the GDP, or 98.2% of the aggregate budget financing targets.
The deficit stands at 4%. We should also include the oil and gas deficit in this – that is, the portion of the budget that is covered using oil money, including reserve funds and borrowings. The non-oil and gas deficit amounted to 12.6%.
Let me remind you once again that Russia is assessed not in terms of its overall deficit, which is the parameter by which we assess other economies. As a country that is heavily depended on oil, Russia is more accurately assessed using the non-oil and gas deficit. And that remains at a very high level.
This non-oil and gas deficit, which stood at 12.6% in 2010, is approximately 4%-5% higher than the normal, moderate value for our country. As you may recall, it was as low as 6.5% in 2008. It is double what it was before the crisis in 2008, and it remains the focus of our concerns.
By comparing the revenue and spending structures I can say that both tax and non-tax revenue grew by over 13% as compared with the year before. Primarily, these consisted of revenues generated by higher oil prices. However, the other part came from revenue generated by additional economic growth, imports and additional transfers of the Central Bank revenue. The revenue was up compared to 2009. However, if we compare them with the pre-crisis figures in 2008, they were still lower by 270 billion roubles. This is due to the fact that we cut the revenue tax by 4% during the crisis and transferred insurance premiums from the federal budget to the social insurance fund and pension fund. In addition, oil and gas proceeds were lower by 2% of the GDP on average, as compared to the pre-crisis period.
As the anti-crisis programme was scaling down relative to 2009, the expenses on the national economy were cut by 25%. However, they remained higher than in 2008. The anti-crisis programme reached its goal, we helped enterprises survive and reduced our spending on economic support. But it is still above the pre-crisis 2008 levels.
Spending on education was up during the crisis in 2008. In 2009, it rose by 17%, and in 2010 by 5.9%.
Spending in other areas was up as well. Overall, real expenses were higher in 2010 by 12.9% as compared with 2008.
You may recall that pensions were significantly increased in 2010. Despite the fact that the economy was still reeling from the crisis, the overall amount of pensions rose by 45%. We continued to support all key industries, spending more money on them than in previous years. However, there was a deficit in the budget of the Pension Fund, and we released 1.316 trillion roubles from the federal budget to cover the Pension Fund deficit. The government provided guarantees to support the investment in the amount of 299 billion roubles.
The reserve fund was not replenished in 2010. As you may recall, we were mostly spending money. Our total spending from the Reserve Fund and the National Welfare Fund amounted to 996 billion roubles. As reference, 3.1 trillion roubles from the Reserve Fund were spent in 2009.
People frequently wonder why reserve funds are not kept in Russia. If they were, that would mean that as soon as we felt the need for these funds, we would have to sell all the securities traded on the Russian market, which are worth 3 trillion roubles. That means if we had bought them on the Russian market before the crisis, we would have created a bubble. Later, during the crisis, when enterprises were experiencing financial strain, we would have sold these securities. A drop in the Russian securities market at a time when the government goes ahead and sells securities in order to cover budget expenses would have meant the collapse of the Russian securities market. I'll say it again – Russia cannot invest that much of its accumulated reserves in the domestic securities market. It is significantly inferior to international ones in terms of the number of issuers and reliable enterprises. Its capacity is inadequate even for our Reserve Fund.
In 2009, we sold 3 trillion roubles worth of securities of the leading economies with the highest ratings. We raised 98 billion dollars, which we spent on our needs. We sold them without a loss, at a profit, even. This is how we preserved and supported our market, by transferring our external investments back into Russia. This was our anti-crisis policy, which is in line with international best practices. As you may know, our anti-crisis policy was recognised as one of the best in the world in corresponding ratings.
In 2010, we provided significant assistance to the Russian regions. We transferred all kinds of allowances, subventions and subsidies in the amount of 1.398 trillion roubles. Of these, allowances accounted for 523 billion roubles, subsidies used for different federal targeted programmes made up 415 billion roubles, 379 billion roubles were used for subventions and 72 billion roubles for inter-budgetary transfers.
Back in 2009, when the regions found it difficult to procure money in the market, we implemented a special anti-crisis loan programme. We issued 170 billion worth of loans to the Russian regions. Incidentally, some of them need to be repaid by next year already. We will not be able to extend repayment deadlines for everyone. It would be wrong to do so anyway, especially as enterprises and regions are seeing an increase in their respective revenues. However, we will be able to refinance about 50% of these loans for an extended period. The rest of the loans should be refinanced in the market, which is now offering favourable terms.
I'll wrap up my speech now. I have heard that there are questions regarding the report by the Audit Chamber and the 145 billion roubles of budget spending. This has nothing to do with theft or any other criminal act. This should be corrected through administrative measures. They mentioned violations of the procedures involved in government contracting. This doesn't mean that there was something wrong with the government purchases or that the money went the wrong way. They simply violated the government contracting and reporting procedures in the ministries and departments. We will look into improving reporting procedures in cases that need administrative input. We will adopt appropriate government decisions with regard to these ministries.