Agenda: Socioeconomic development forecast, draft federal budget for 2022 and the planning period of 2023 and 2024.
Excerpts from the transcript:
Mikhail Mishustin: Good afternoon, colleagues.
A terrible tragedy happened at Perm University yesterday. It is extremely important to provide support to those who were injured during the attack and to the victims’ families. We cannot abandon these people to face this tragedy alone. They are being monitored by doctors, who are providing the necessary treatment. The most serious cases have been transported to Moscow on board an Emergencies Ministry plane.
Acting on the President’s instructions, the Government is providing whatever assistance it can, including financial allocations. A decision has been signed to earmark some 18.5 million roubles. The injured and the families of the deceased will receive one-time compensation payments of between 200,000 and 1 million roubles.
I would like to ask you to take all the necessary measures so that people receive the payments due to them promptly and without any procrastination or delay.
This is a tragedy for all of us. It is our common loss. We are commiserating with those who have lost their dear ones. And we wholeheartedly wish an early recovery to those for whose survival our doctors are fighting.
Before we get down to our agenda, I would like to say a few words about the latest elections.
The elections were held in all Russian regions last Sunday. The preliminary vote counting is underway. As of now, five parties will hold seats in the new State Duma.
[Newly-elected] lawmakers and governors will start working. They will need to honour the commitments and fulfil the promises they have made to the people, with due regard for the priorities outlined by the President. They concern primarily support for families with children, the creation of new jobs, a number of large-scale infrastructure modernisation projects, as well as several other initiatives that are to be implemented within the framework of the President’s instructions.
I would like you to note that we need to develop interaction with the new State Duma, regional legislatures and heads of the regions as soon as possible. This objective is also on the agenda of the territorial branches of our ministries and agencies, my deputies who are responsible for the federal districts, as well as, of course, the Government as a whole.
Let us now get down to our agenda. We are completing the drafting of the budget for the next three years.
The President has pointed out that we must maintain streamlined interaction between the parliament and the Government. This is necessary not only during the discussion of the main financial document in the new State Duma, but also when formulating regional budgets, because the issues of utmost importance for the people are tackled locally. I would like to ask you to act in the most conscientious manner so as to justify the people’s trust.
Today we will be discussing a draft federal budget for the next three years. It will determine our future development path. It is a challenging and complicated job. The budget is based on a simple concept: increasing people’s prosperity. Our main task is to take care of our citizens. These priority goals are set out in the President’s Executive Order On the National Development Goals.
The revival of the national economy after a rather complicated period is becoming increasingly sustainable. We expect GDP to grow by 4.2 percent this year. This means that our crisis response measures have proved effective.
Consumer demand is returning to pre-crisis volumes, supported by a revival on the labour market where the employment indicators have returned to the pre-pandemic level. It is this goal that the President set us.
Today we will discuss a large package of draft laws, which provide for the allocation of funds for economic development and the social sphere and for dealing with the problems that are of direct concern to the people. Our budget is focused on the full implementation of all government obligations to the people.
Allocations for these purposes will not be reduced. On the contrary, they will be gradually and significantly increased over the next three years. For example, allocations to national projects will increased by over 30 percent in 2024 compared to 2020. Allocations for the attainment of the goals set out in the President’s Address to the Federal Assembly will be increased almost fourfold.
Today we clearly understand what we must finance and how this should be done within the next three years. And our understanding is based on specific figures.
Of course, our main goal is to provide targeted support to people, primarily families with children, those who are in a difficult situation, and low-income single parents. This requires considerable funds. All of these have been stipulated in the budget and will be transferred to every region and every individual who needs this support. This is what the concept of justice is all about.
We will allocate major funds for the development of our healthcare system, the fight against dangerous diseases (cardio-vascular diseases and oncology), as well as for the vital objective of modernising the primary care system. Special attention will be given to the residents of rural settlements and small towns. Medical care must be made more accessible for them, which is why the budget stipulates financing the acquisition of mobile healthcare systems and new ambulances.
Also, in accordance with the President’s instructions, we have planned a major project to enhance the accessibility and quality of education in the next few years. We can greatly improve the situation in this sphere, so that our children and grandchildren have more opportunities, receive new knowledge and after graduation can find employment on the highly competitive modern labour market.
We have also taken into account issues that are particularly important to people when coordinating the budgetary parameters of the mandatory medical insurance and pension funds and the social protection fund, which we will discuss today as well.
The Government has earmarked the necessary funds for free medical care, including high-tech medical services, which people will be able to receive at federal clinics free of charge, just like they did this year. This includes complicated and often badly needed surgery and treatment methods.
Substantial funds will go towards dealing with the effects of the coronavirus disease, primarily enhanced medical examinations that started across the country this past summer, as per the President’s initiative. These check-ups will continue throughout next year. In keeping with the instructions issued by the head of state, we will develop a rehabilitation programme in order to make it more accessible and cutting-edge and to ensure it conforms to an even higher standard. Again, it is free of charge for citizens.
The Federal Fund for Mandatory Medical Insurance will set aside an emergency reserve, which is essential for ensuring that the healthcare system remains sustainable.
As for other social commitments, people will continue to receive their pensions, other allowances and benefits, including allowances for temporary disability, pregnancy and childbirth, as well as non-recurrent pay-outs after birth from the funds. Beginning next year, there will no longer be any need to file any applications. Everything will happen automatically and online, which is much more straightforward and convenient. People will not have to provide any information to their employers, as is the case today, so parents will have more time to spend with their little ones instead of running around doing paperwork and waiting in lines.
In addition to this, there will be a new system for calculating sick leave allowances for mothers and fathers staying at home to take care of their children under 8 years old. They will now be entitled to 100 percent of their average pay, just as the President suggested during his Address to the Federal Assembly. We have factored the necessary funding into the relevant budgets. The same applies to paying out maternity capital allowances and adjusting them for inflation, as well as employment and occupational injury benefits.
We will continue to offer rehabilitation equipment to people with disabilities, financed by the Social Insurance Fund. For these people, this has a direct bearing on quality of life.
Colleagues, I have highlighted only some of the top priorities, including social commitments, that we will have to address soon.
To do so, it is essential that we place the country on the path to sustainable economic growth. In this regard, much will depend on the regions and their financial soundness.
As instructed by the President, to help the Russian regions we earmarked funds for granting subsidised budget loans. This tool will enable local governments to take out fewer costly bank loans and thus substantially reduce their interest payments. There are also new effective tools at their disposal: infrastructure budget loans and bonds that offer additional opportunities to promote economic development and deliver on social commitments.
All the measures set forth in the budget documents that we are discussing today should not be regarded as one-off initiatives, but rather as forming part of a system-wide effort to improve the quality of life for every person in Russia. We will continue doing all we can to ensure this spending is effective and produces maximum returns.
There is another important draft law on the agenda. It deals with increasing the minimum wage. Let me remind you that a new method for calculating it came into force this year. The proposal is to set the minimum wage above 13,600 roubles, which is expected to increase salaries for almost three million people.
Colleagues, today we are completing a key stage in the budget process. But it is not the last one. We will have detailed discussions on the federal budget with members of the newly elected State Duma. May I ask you to approach this work in a very responsible manner. Be ready to justify all the figures and explain how all the measures set forth in the budget will impact people and the country in general.
Let’s now open the floor for the discussion.
Minister of Economic Development Maksim Reshetnikov will present a three-year socioeconomic development forecast, followed by a presentation by Minister of Finance Anton Siluanov.
Mr Reshetnikov, please, go ahead.
Maxim Reshetnikov: Mr Mishustin,
Let me present a forecast of [Russia’s] socioeconomic development. As usual, two versions of it – basic and conservative – have been drafted, with the former one taken as a basis.
Trends in the economy have enabled us to improve the assessment of this year and the midterm forecast by comparison with the April scenario terms and with July’s renewed forecast for the regions.
The economy has recovered three months earlier than expected by the National Economic Recovery Plan that was drafted and approved last autumn: the recovery occurred during the second quarter of the year instead of the third one.
In July, GDP exceeded the pre-pandemic level by 0.4 percent. I would just like to remind you that this is the level of the fourth quarter of 2019. Moreover, this happened against the background of persisting restrictions on mineral production under the OPEC+ deal and an incomplete recovery in passenger carriage and paid services.
The output in the manufacturing industry, agriculture, transport, freight traffic, and the construction industry is confidently surpassing the pre-pandemic levels.
Domestic demand, both investment and consumer, was the main recovery driver during the first six months of this year.
The consumer demand is being maintained based on the rallying of personal incomes and the release of pent-up demand, with people making purchases they failed to make last year.
In June and July, the consumer demand dynamics were stabilised due to the expiry of time factors. Simultaneously the situation remained on the level keel owing to the payments to schoolchildren in August and to pensioners and the military in September. Our forecast has taken into account their positive effects for the economy.
As you mentioned, the situation concerning the labour market is getting better as well. In July, unemployment and the number of gainfully employed people actually returned to the pre-COVID level. Real earnings continue to go up, too.
During the first six months of this year, investment in fixed assets exceeded the 2019 level by 5.4 percent and the 2020 level by over 7 percent. The active boost of organisations’ net profits is supporting the investment growth. The rise in corporate and mortgage lending and an increase in the budget investment during the first eight months of this year have surged by more than 11 percent within the budget system as a whole.
I’m going to briefly dwell upon the main parameters of the forecast, which was upgraded on the basis of these estimates.
The first thing is, we have updated our forecast for oil prices compared to April. This year, the average Urals price will be $66 per barrel. At the same time, the forecast includes its gradual reduction to a level of $55 by 2024.
As for the rouble exchange rate for this year, the average estimate is 73.6 roubles per US dollar. In our estimation, the rouble is somewhat underestimated right now. This is happening because we have been applying the fiscal rule, and that caused an increase in the circulation of foreign currency, as well as because residents have been accumulating foreign currency assets.
The significant volume of imports, which was part of Russia’s economic recovery, has also played a role, and so did international investor sentiment, including their assessment of country risks. We expect the rouble to appreciate slightly at the close of the year and early next year. However, starting from 2023, it will gradually weaken due to the differences in deflator indices in Russia as well as our trade partner countries.
Now, inflation is a separate matter. By the end of December, we expect it to reach 5.8 percent year on year. I would just like to point out that this forecast is slightly higher than the minimum level included in the baseline scenario the Bank of Russia considers in its Monetary Policy Guidelines. Our forecast until the end of this year relies on a stable rouble, a continued seasonal decline in the price of fruit and vegetables with the Ministry of Agriculture’s good harvest estimates, stabilisation of petrol prices and the effective use of the damping mechanisms that we launched on food markets earlier this year.
At the same time, there are external risks for assessing this year’s inflation. One of them has to do with the price hikes on global food markets that resumed at the end of August, as well as the growing global inflation – we can see rather high levels in partner countries.
In the medium term, we assume that the Central Bank’s measures along with the non-monetary mechanisms adopted at the government level will return inflation to the four percent level that is stipulated in the Monetary Policy Guidelines, which will also be considered today.
At the same time, I would like to underscore that the aggregate consumer utilities bill will not be indexed above the previously agreed level of four percent, which is directly stipulated in the forecast. Thus, regulated utilities fees will serve as a kind of anchor for inflation and, accordingly, will contain it.
With regard to economic growth, as you mentioned, we have raised our 2021 GDP growth estimate to 4.2 percent. In 2022, Russia’s GDP will be influenced by two factors – growth will be driven by a rise in oil production after the completion of the OPEC + deal, while the tightening of monetary policy will have a constraining effect.
During the next few years, GDP is expected to go up by 3 percent annually. As regards the various components of economic growth, GDP is expected to be largely driven by the growing consumer demand, the real disposable incomes. This year, we expect a recovery growth of 3 percent, and an average of 2.5 percent in the following years.
The situation concerning the labour market with low unemployment (no more than 4.6-4.7 percentage points), growing wages, as well as the recovery and subsequent growth of entrepreneurial incomes and property incomes will contribute to the overall increase of income. Accordingly, we expect growth in the retail and services sector.
The Central Bank’s baseline scenario envisages a 4.5 percent rise in fixed capital investment this year, 4.8 percent next year, and over 5 percent on the horizon of 2023–2024.
The rise will be driven by measures to increase investment. Such measures include investing any surplus of the liquid part of the National Wealth Fund in excess of 7 percent of GDP, as is prescribed by the rules governing the fund. This work is now underway. The Russian regions are expected to take advantage of the infrastructure development policies that you mentioned – the budgetary infrastructure loans, and the possibility of restructuring a region’s loans before the next federal budget is formed.
These allocations should give a boost to state investment as well as those investment projects that will be supported by state investments.
This year, net exports will contribute negatively to GDP, which is common for a post-crisis recovery period. Accordingly, the increased consumer demand, among other things, has caused an increase in imports. But as early as next year, its contribution will become moderately positive again as measures to stimulate non-resource and non-energy exports and lower imports will take effect.
Growth will be driven by sectors that rely on investment for development, export-oriented sectors, manufacturing industries, IT, construction, real estate, transport and professional services.
I would just like to underscore that we have significantly upgraded our forecast for the indicators that are important for the federal budget. Nominal GDP will increase 22 percent in 2022 compared to 2019, which means an additional 24 trillion roubles. This means the revenue and expenditure sections of the federal budget can be both expanded in comparison with April estimates and the federal budget law.
I would like to thank Mr Anton Siluanov and the entire Finance Ministry team. The Ministry of Finance and the Ministry of Economics have always had disagreements when forming the federal budget. This year, my colleagues and I went to lengths to record and account for all revenues as fully as possible.
Now that the monetary policy is tightening up, it is essential that our fiscal policy remains neutral. In other words, all non-oil and gas revenues need to be channeled back into the economy as social benefits, construction projects, science and technology projects and other priority spending as provided for by our state programmes. To achieve this, we need effective procedures, smooth and steady government spending – to make federal funds turnover faster and reduce outstanding funds.
Mikhail Mishustin: Thank you, Mr Reshetnikov.
I am giving the floor to Anton Siluanov. He will report on the draft federal law on the federal budget for 2022 and the plans for the 2023-2024 period.
Anton Siluanov: Mr Mishustin, colleagues,
We discussed our budget policy and the main budget parameters at the budget commission and the Government meeting under your supervision. We took the forecast of the socio-economic development into account when forming the budget for the next three years. As Mr Reshetnikov said, the forecast is ambitious in many respects and, hence, the budget parameters are strained.
We see that this year the economy has fully recovered and reached the pre-pandemic level. We took this into consideration when drafting our budget policy. We formed the budget with due regard for the budget rules. This will bring inflation back to our target of about four percent a year.
The main characteristics of the budget: we estimate that federal revenues will exceed 25 trillion roubles in 2022, 2023 and 2024. These figures are much higher than we planned before, primarily thanks to the recovery of economic growth.
In addition, we took into account additional ways of mobilising revenues, primarily from incoming tobacco excises. We drafted a plan for this purpose and improved the relevant administrative procedures. We also considered additional revenues from metallurgy, coking coal mining and fertilisers.
At present, we are completing our work with business on the tax legislation arrangements. We plan to introduce them from next year.
Proceeding from the forecast of revenues and budget rules, we calculated federal expenses: 23.6 trillion roubles in 2022, 25.1 trillion in 2023 and 26.1 trillion in 2024. In other words, every year expenses grow by at least 1 trillion roubles.
This allows us to fund all priority expenses, to provide funds for all priority tasks.
The budget parameters provide for a budget with a surplus of about 1 percent of the GDP. From 2024 onwards, we expect a budget deficit of around 0.2 percent of the GDP.
Now I will tell you about the key tasks included in the draft main financial plan.
Our priority is to attain the national development goals. The budget provides for the full funding of all the tasks set in our national projects and in the President’s addresses to the Federal Assembly, and this figure is growing every year.
In 2024, we increased the total allocation of funds for national development goals envisaged by national projects and implementation of the President’s addresses, by 1.7 times compared to 2020. We will spend 3.6 trillion roubles for these purposes in 2022, 3.9 trillion in 2023 and 4 trillion in 2024.
We are going to spend these funds primarily on reducing poverty. Over 5 million families with children will receive additional social support measures. The budget expenses for these purposes will amount to 2.1 trillion roubles. We will channel more than 500 billion roubles into the construction of 1,300 new schools and the repair of about 4,500 schools before 2024. About 60 billion roubles will fund the construction of worldclass university campuses. This is a major task and a new step forwards in the development of our higher education.
The draft budget provides for the funding of treatment for children with life-threatening diseases.
It also provides funds to eliminate, by 2025, dilapidated housing, in which about 500,000 people are living for the time being. We started implementing this programme in 2017 and we are now going to launch a new programme for resettling people from substandard housing.
The draft budget allocates substantial funds for projects on transport infrastructure and environmental protection, to name a few.
I would like to make special mention of the full funding provided for the Government’s strategic initiatives. It will amount to 500 billion roubles in the period up to 2024. This includes all initiatives that are moving our economy along the modern, new tracks, such as electric vehicles, hydrogen cars, advanced engineering education, clean energy, and new nuclear power.
I would also like to emphasise the accelerated development of various branches of the economy. The budget allocates additional funds for these purposes. This applies to the implementation of the new national project on tourism; the development of a range of new civil aircraft and the promotion of electronics and radio electronics. The budget includes provisions for the planned allocations for all of these projects that the Government discussed in detail at its meetings.
The draft budget envisages additional funds for national defence, security and law enforcement, remuneration of service personnel, an increase in the number of volunteer recruits and improvement of the material and technical support for the power agencies and the Emergencies Ministry.
In addition, the draft budget has a reserve for countering the coronavirus infection. It has the funds for this task.
In total, the budget has almost 5 trillion roubles of additional allocations for the period to 2024 for implementing the instructions of the President and the Government on the socio-economic development.
In addition to prioritising expenses and streamlining the tax system, the budget provides for measures to stimulate the economy. These are preferential budget loans to the regions of the Russian Federation and opportunities for the regions to use funds from restructuring budget loans for economic development. This also applies to 1.6 trillion roubles from the National Wealth Fund (NWF) which is to be spent on socio-economic projects.
Importantly, investment by the NWF is linked to its preservation, the sustainability of the budget and the parameters of monetary policy.
The draft budget meets our national development tasks and goals. It provides for the full funding of the implementation of all decisions made by the President and the Government.
I would like to ask you to support the budget projections for the next three years.
Mikhail Mishustin: Thank you, Mr Siluanov.