PARLIAMENT APPROVES RUSSIA’S 2000 BUDGET…

The Federation Council, the upper house of Russia’s parliament, approved the 2000 federal government budget on December 22 (Reuters, December 22). This comes on the heels of Russia’s exceptionally good budgetary performance in 1999, when for the first time virtually all of Moscow’s key fiscal targets were met or exceeded. A repeat performance in 2000, however, is unlikely.

Russian fiscal policy has for years been among the postcommunist world’s most disorderly. According to Moscow’s calculations, the deficit on the federal government’s budget during 1994-1997 absorbed an average of 4.4 percent of GDP. According to the budget methodology used by the International Monetary Fund (IMF), these deficits averaged 7.4 percent of GDP during this time. During 1992-1994 these deficits were financed largely by the printing press, which resulted in triple- and quadruple-digit annual inflation rates. During 1995-1998 Moscow borrowed increasingly to finance these deficits, which resulted in Russia’s August 1998 debt crisis and financial collapse.

Shorn of its ability to borrow, Moscow since 1998 has turned over a new fiscal leaf. The federal deficit (by IMF methodology) dropped to 5.7 percent of GDP in 1998, and through the first ten months of 1999 had fallen to only 3.4 percent. By Russian government methodology (which, in contrast to the IMF’s, treats receipts from privatization and gold sales as budget revenues), the deficit had fallen to only 1.3 percent of GDP. This was barely half of the 2.53 percent share of GDP targeted for the deficit in Russia’s July 1999 agreement with the IMF. A growing economy and growing enterprise profits–both of which were helped by 1999’s sharp rise in oil prices–had allowed budget revenues to climb to 12.9 percent of GDP, above the 11.8 percent promised the IMF. Meanwhile, spending during the first ten months of the year had absorbed 14.2 percent of GDP, just under the government’s 14.4 percent target. Moreover, in contrast to previous years, Moscow was current on nearly all of its wages to federal employees. These developments suggest that, when Moscow wants to–and when the rest of the world is unwilling to lend Russia any more money–it is capable of getting its fiscal house in order.

…BUT A REPEAT PERFORMANCE OF 1999 IS UNLIKELY.