RUSSIAN BUDGET HOLDS UP WELL DESPITE ECONOMIC SLOWDOWN.

Russia’s economic expansion slowed sharply in early 2001. GDP growth during the first quarter of 2001 is estimated at 4.2 percent by the Economics Ministry, and at 3.4 percent by the Central Bank of Russia (Russian Journal, May 11-17). Either way, the expansion has slowed sharply from the 8.3 percent revised GDP growth figure reported for 2000 by the State Statistical Office last month (Reuters, April 26). Oil prices, which many observers see as the key cause of Russia’s economic recovery, have dropped some US$5-6 per barrel from their November highs. Moreover, Moscow in 2001 is covering all of its foreign debt obligations, while the 2001 budget (when it was originally crafted) assumed that Russia would continue to be able to accumulate debt service arrears.

These trends could be expected to bring an end to the strong fiscal balance Russia showed last year, which many observers argued was due largely to favorable macroeconomic trends and Moscow’s unwillingness to fully cover its foreign debt. But while the skeptics could turn out to be correct, there is no evidence of this so far. Instead, according to preliminary data released by the Finance Ministry on May 4, the federal budget trends of 2000 continued through the first four months of 2001. These data indicate that Russia’s finances remain strongly in the black and that Moscow is swimming in cash.

Federal budget revenues through April had risen to 453 billion rubles (nearly US$16 billion), which amounted to nearly 18 percent of the nominal GDP that the Economics Ministry estimated for the first four months of the year. During January-April 2000, by contrast, federal budget revenues were only US$11 billion (16 percent of GDP). The improvement in Russia’s revenue picture is due to increased tax revenues: The share of GDP collected in federal taxes rose from 14 to 17 percent of GDP. In real terms, federal tax revenues rose some 25 percent in the first quarter, boosting overall budget revenues by some 13 percent. While data on the revenues provided by individual taxes have not yet been released, the surge in tax revenue suggests that concerns about the possible fiscal impact of the 13-percent flat tax have not yet been born out.

SPENDING GROWTH UNDER CONTROL, MORE MONEY TO SERVICE FOREIGN DEBTS.