The Ministries' projects

New efforts of the Ministry of Economic Development and the Ministry of Industry and Trade of the Russian Federation are aimed to improve the business environment in the short and long term periods.

2016 interim economic results seem better than forecasts. On the one hand, the key indicators are on the rise, on the other hand, the negative factors, influencing on the Russian economy, became less significant. The oil prices exceeded the budgeted amount; the investment of Western investors has grown. The citizens, who followed the saving line during the last few years, began to increase the consumer activity. The Government preparing new ideas to support the industries, taking into account the importance of anti-crisis activity.

Targeted development. The key document regulating the country’s short-term economic development is the economic support plan for 2017 signed by the Prime Minister Dmitry Medvedev on January 20. The plan was prepared by the Ministry of Industry and Trade of the Russian Federation and provides allocation of 107,5 bln RUB (in addition to the budgeted) for industries’ support; the plan is based taking into account the invariance of such negative factors as sanctions and low oil prices in the medium term. The document prepared by Denis Manturov Ministry suggests the additional support for different economy sectors. More than half of funds will go to the automotive industry (for example, for concessional lending and leasing), the support will also receive the Industrial Development Fund and such industries like agricultural machine building and equipment manufacturing for food industry, which is already protected by the retaliatory sanctions. The main focus is made on engineering industry development as the industry might exert the significant influence on the economy from the point of engineering principles, technological base and long-term dynamics. It is expected, that funds for plan execution will be allocated from the budget reserves of the Government.

Long-term certainty. Simultaneously with the strategy of short-term economic strengthening, the Russian White House is working out the Government integrated action plan 2017 – 2025 aimed at achieving the economic growth rate above the world average no later than 2020. The plan is based on structural and institutional reforms in economy, which should spur economic growth, decrease the share of black economy, decrease the taxes for legitimate business and provide business community and citizens with the certainty of business prospects; the last point is the main barrier to capital inflow at the moment. According to the Head of the Ministry of Economic Development Maxim Oreshkin, who is responsible for plan preparation, economic uncertainty is one of the key reasons why companies set aside the investment and postponed the expansion of production. Because of that the main focus of economic authorities at the moment is return of certainty in economic agents’ expectations. In this case the predictability of inflation is important as well as fiscal policy and stability of tax legislation. From this point of view the significant progress is already achieved – the three-year budget. The budget demonstrates the stability of state finances without increase of tax burden upon the three-year conservative script with oil price of $40 per barrel. The main aim of economic policy is to have the set of actions in case of different and difficult external conditions, not to predict the oil situation. According to Maxim Oreshkin plans, the first edition of the document will be ready in March; by order of the President of the Russian Federation the final edition should be adopted in May.

Starting point. According to the experts’ forecasts, this year the economic and GDP growth might be captured first time for a long time. The positive price dynamics on primary goods will influence on personal income growth, the growth of industrial production will also support the economy. Russia is the large and interesting market for the world investment community; market access is limited due to political dimensions and the situation regarding this issue might also start changing. In this context the Government steps focused on stabilization and growth of domestic economy will have significant importance. Decline in tax burden, business risks and return of certainty in business community’s expectations - might become the starting point of stable long-term economic growth.

2017-2019 budget – anti-risk and socially oriented

As of December 19th, 2016 the budget for 2017-2019 became a federal law under number 415-FL named “On the federal budget for 2017 and for a planning period 2018 and 2019”. The budget is made up on the basis of conservative prediction, in particular: assuming average free market oil price amounting to USD 40; annual average dollar rate amounting to RUB 67,5 per USD 1; inflation rate amounting to less than 4% at year-end.

The major part of income will be created by non-oil and gas income - 62,6%. It will be driven by increase of underlying tax receipts: value-added tax, income tax, excise duties. Decrease of federal budget oil and gas income from 37,4% in 2017 to 36% in 2019 is expected. Government domestic loans of the RF will be the main source of financing the federal budget deficit. During 2017-2019 the volume of the government debt will remain on the safe level equaling to less than 20%. Main characteristics of the budget for 2017-2019 are represented in the table 1.

Table 1. Main characteristics of the budget for 2017-2019
GDP (basic version), billion RUB 86 806 92 296 96 860
Inflation rate, % Less than 4 Less than 4 4
Income, billion RUB 13 487,567 14 028,492 14 844,811
Expense, billion RUB 16 240,809 16 039,685 15 986,976
Deficit, billion RUB 2 753,242 2 011,193 1 142,165
Income to GDP, % 15,5 15,2 15,0
Reserve Fund (regulatory value), billion RUB 6 076,420 6 460,720 6 920,200
Domestic government debt (ceiling), billion RUB. 10 351,624 11 580,941 12 788,387
External government debt (ceiling), billion USD 53,6 52,8 53,6

In 2017 the main expense items will be social policy – 5,08 trillion RUB, national economics — 2,292 trillion RUB, safety and law enforcement activities — 1,27 trillion RUB, federal issues - 1,135 trillion RUB, national security — 1,121 trillion RUB. The rest expenses are allocated as follows: inter-budget transfers - 783,5 billion RUB, government debt management — 729 billion RUB, education — 568 billion RUB, health care service — 377 billion RUB, culture and cinema art — 94 billion RUB, sport — 89,7 billion RUB, environment conservation — 76,4 billion RUB, mass media — 73,4 billion RUB, housing and public services — 58,2 billion RUB.

The budget for 2017-2019 is enacted; however the country needs aggressive priming of domestic economy growth. Therefore it is necessary to start preparing a plan of its reconstruction and reorganization. The successful result will appear in case of availability of loans, strong tax incentives, investment growth, including using budget funds, defeating nonmonetary inflation, related in the first place to growth of monopoly prices and rates, regulated by the government etc. At the moment for example such conditions are created in the agricultural sector, as a result the success on the rate of no less than 4% is expected at year-end 2016.

The experts predict slight or zero growth in the absence of serious changes. The big growth will be possible when increasing the number of average free market oil prices. The case when the cold snap in the economy will take place is regarded the worst. In its terms the system risks, prices, inflation, ruble will run out of control. It will lead to dollar strengthening, declining oil and gas prices, financial shocks, passing in form of chain reaction from one country to another.