A TOUGH REFORM BUDGET FOR RUSSIA IN 1998?

Russia’s draft federal budget for 1998 was made public on August 21. The draft was put before the Russian parliament by the legally-required date (August 26) and the Duma is scheduled to debate it on October 10-11. There is no question that the draft budget is a tough, and fundamentally reform-oriented, set of taxing and spending proposals. It preserves the reductions in federal spending that have been targeted in the revised ("sequestered") version of this year’s federal budget, which had already upset the Duma. The revised 1997 budget calls for revenue equal to 13 percent of GDP and expenditure equivalent to 16.5 percent — a federal budget deficit of 3.5 percent of GDP. That is how the figures look, at any rate, based on the traditional Russian definitions of expenditure and deficit. On that same basis, the federal revenue planned for next year would be 12.7 percent, expenditure 15.7 percent, and the deficit 3.0 percent of projected 1998 GDP. If Duma deputies do not like the revisions to this year’s budget, they are unlikely to greet the draft for next year with any more enthusiasm.

Moreover, the draft 1998 federal budget eliminates some spending headings that were dearly loved by various powerful special interests. They include subsidies to the city of Moscow (which does not need them) and for seasonal goods supplies to the far North (which were siphoned off by banks and others). Several other favorites have already been slashed in the 1997 revision.

Assessment is complicated by the fact that the new budget is being presented, for the first time in Russia, according to standard international definitions of expenditure and (therefore) of the deficit. These changes, welcomed by the IMF and in general by international observers, change nothing of substance but make the budgetary picture look a bit worse than it would have been under the old practice: federal spending now weighs in (in the draft for 1998) at 17.2 percent of projected GDP and the deficit at 4.8 percent.

Doubts Cast on Russia’s Draft 1998 Budget.