Publication: Monitor Volume: 7 Issue: 94

Federal spending in Russia has grown alongside revenue, but the growth has been more restrained. While the 340 billion rubles (US$12 billion) in expenditures during January-April 2001 represents a 9-percent increase (in real terms) over the first four months of 2000, the 13 percent of GDP represented by this spending does not differ significantly from the share of GDP absorbed by federal spending last year. This increased spending was due primarily to increased debt servicing, which rose some 60 percent in real terms and absorbed more than 4 percent of GDP (compared to about 2 percent of GDP last year). This growth was due to a doubling in interest expenditures on Russia’s foreign debt, which itself accounted for most of these debt-service costs.

Due to this surge in debt service costs, non-interest expenditures dropped by some 5 percent in real terms, and absorbed only 9 percent of GDP during the first four months of the year (By contrast, non-interest spending represented 11 percent of GDP in 2000.) Somewhat surprisingly, this shrinkage was mirrored in an estimated 5-percent decline (in real terms) in reported military spending, while outlays on internal security were essentially flat. Taken together, the share of GDP represented by budget allocations for the “force ministries” dropped from 5 percent during January-April 2000 to 4 percent during the first four months of 2001. These figures do not capture the full economic burden posed by Russia’s military industrial complex. But the Finance Ministry data do indicate that army is not getting everything it wants. The Defense Ministry during February-April was only able to spend 85 percent of the rubles allocated for those months by the 2001 budget, as the Finance Ministry refused to release funds for which the appropriate documentation was not submitted. By contrast, spending on social and cultural programs during January-April rose some 40 percent in real terms, and absorbed nearly 3 percent of GDP–its largest share since 1997. Federal subsidies to regional and local governments more than doubled in real terms during the first four months of the year, and absorbed another 3 percent of GDP–their largest share in more than five years. This growth reflects the ongoing centralization of Russia’s fiscal finances, under which the regions are relying on growing subsidies from Moscow to offset reductions in the regional share of overall tax receipts (Sotsial’no-Ekonomicheskoye Polozhenie Rossii, February 2001).