Price for corn increased up to USD 287 per ton in June, which by 17.9% exceeds the figure of the previous month. Over the period since the beginning of the year the corn has already become more expensive by 59.3%. The growth of prices for corn reduces considerably the profitability of ethanol production and may lead to the decrease in the demand for cor, from the producers of the liquid fuel, which probably result in the stabilization of prices for corn in the second half of the year.
A considerable drop of prices for rice was observed at the word market in June, which is connected with the drop in the demand from the main importing countries and improving of the situation with the supply of this crop.
In June the price for rice reduced by USD 126.5 per ton and was equal to USD 755.3 per ton. As compared with last yearТs December rice became more expensive by 115%. On the whole, according to the estimations of the International Grains Council, demand and supply remain balanced at the rice market.
Prices for soy, peanut and sunflower oil continued to grow. The price for palm oil has not changes as compared with May. In January-June of the current year growth of prices for soy, peanut and sunflower oil was, correspondingly, 30.8%, 37.2% and 241.8%.
As compared with January-June of the previous year in the first half of the current year export and import growth has been the highest observed since 1991. In January-June 2008 import increased by 41.3% as compared with January-June 2007 and was equal to USD 135.0 bln. Russian import in January-June 2008 reached the level of USD 238.0 bln, which by 52.5% exceeds the export volume over the first six months of the previous year. In contrast to the last yearТs trend, when the import was growing at anticipating rates, this year, though import growth is growing considerably, export is growing even faster. This is primarily connected with the record-breaking growth of prices for oil and oil products. As a result, trade balance increased by 70% in the first half of 2008 as compared with the first half of 2007, and coefficient of foreign trade non-balance (ratio of the balance to the foreign trade turnover) was equal to 0.28 in the first half of 2008 as compared with 0.24 over January-June 2007.
According to the data of the customs statistics in the first half of 2008 the highest export physical volumes growth rates as compared with January-June 2007 among the fuel and raw materials resources were characteristic for natural gas (20.9%), coal (8.0%), intermediate iron and steel products (6.6%). Export physical volumes growth rates were moderate for export of oil products (4.6%), copper (3.0%) and nickel (2.0%). Over the period considered export physical volumes of oil reduced by 8.1%, of unprocessed timber - by 17.2% and of processed timber - by 10.5%. Export of ferrous rolled metal, cast iron and scrap ferrous metals reduced in natural terms, correspondingly, by 0.5%, 14.5% and 11.0%, in the first half of 2008.
One of the positive trends in the Russian economy dynamics is sustention of high export growth rates of machinery and equipment. In the first half of 2008, machinery and equipment export in terms of value increased by 33.8% as compared with January-June 2007.
Fast import growth is accounted for by high growth rates of the Russian economy, populationТs incomes growth, considerable foreign capital inflow, continuing strengthening of the Russian currency.
It should be noted that ruble appreciation against euro over the period considered was nearly equal to the average appreciation of the ruble against the currencies of the CIS countries. According to the information of the Bank of Russia, as compared with the first half of the previous year, the ruble exchange rate strengthened by 4.5% against euro and by 4.6% against the currency basket of the trade partners.
Some changes in the goods structure of the Russian import are connected with the continuous accelerated growth in the main import group Уmachinery and equipmentФ, whose share in the total volume of the Russian import changed from 49.1% in the first half of 2007 to 52.8% in the first half of 2008, the increase in value being 58%.
As there are no prospects for soon RussiaТs accession to the World Trade Organization (WTO) by now, the Russian Government is going to cancel the agreements with the members of the WTO that contradict the interests of the Russian Federation. It should be reminded that besides 60 basic bilateral documents, signed as a result of negotiations with individual countries, some years ago Russia signed a number of agreements with the main trade partners concerning some kinds of goods as well as agriculture. There are about 10 such agreements all in all and they contain some concessions Уin exchange for the promises for support for accession to the WTOФ. These agreements have been in effect for several years, but Russia has not received the support promised.
Russia may refuse reduction of import duty rates for planes and cars, decrease or cancel altogether quotes for preferential meat import, restrict phytosanitary control and make roundwood export unprofitable.
On September 1st 2008 the ban on poultry import from 19 American enterprises came into effect.
During the spot check, conducted by the phytosanitary services in August, it was found that a number of American suppliers ignored the rebukes of the Russian specialists made in 2007 and continued to supply low quality goods to the market. As a result the Russian authorities made a decision on excluding a number of American enterprises, proved of violations, from the list of poultry importers into the Russian Federation. Twenty-nine more enterprises are warned that they should improve the situation with which Russian specialists are not satisfied. Unless the rebukes are taken into account, they will also be excluded from the list of poultry suppliers to the Russian Federation in a month.
Russia is the biggest importer of the frozen poultry from the USA. In 2005 there was an intergovernmental agreement signed, according to which American suppliers enjoy 74% of the quotes for chicken meat supplies and each year the supplies are to increase by 40 thousand tons. At present two thirds of the imported poultry at the Russian domestic market (or 800 thousand tons a year, which is 70% of the total amount of the poultry purchased abroad by Russia) are accounted for by the American chicken legs. For reference: in Russia there are approximately 1.8 mln tons of poultry produced.
To substitute gradually import goods by the domestically produced ones the government increases the subsidies to the agriculture: this year they are equal to approximately RUR 39.5 bln and will increase by RUR 21 bln each year in next three-year period. All in all the program of agriculture support, which is planned for 2008-2012, will receive about RUR 102 bln.
The decision of the Government to abolish a number of agreements, executed by Russia within the framework of the accession to the WTO, gives the Russian side the opportunity to insist on its own version of agriculture producersТ support. Earlier the Ministry of Agriculture of the Russian Federation defined the amount of direct subsidies at the level of USD 9 bln a year. But the members of Cairns group, which include such agrarian countries as Australia, New Zealand, Brazil, Argentina insist on the decrease of the sum down to USD 3.7 bln, while the European countries allocate USD 16 bln for such purposes and the USA - USD 16 bln.
Budgetary and Tax Policy О. Kirillov The RF government has approved drafts of federal budget and RF pension fund for 2009-2011. The Ministry of Finance of the Russian Federation is not ready to reduce the VAT rate and is taking the initiative on the indexation of unified social tax, as well as the tax on mineral extraction. Revenues from oil and gas budget sector of the economy in 2008 are expected to reach a record amount. However, by 2011 they will be reduced nearly twice. As a result of oil and gas budget revenues, in longterm prospect the federal budget may experience a deficit.
In August this year the Government of the Russian Federation has approved the draft federal budget for 2009 and planning period for 2010-2011, as well as draft budgets of the Russian Federation Pension Fund, the Fund of compulsory health insurance and the Fund of compulsory social insurance for 2009.
Table Estimated basic parameters of the RF federal budget for 2009 - 2011 (% versus GDP)2009 2010 Revenues 21,2 19,8 19,Expenditures 17,5 17,4 16,Deficit (Ц)/ Surplus (+) 3,7 2,4 2,Oil and gas revenues 9,1 7,7 6,Non-oil and gas revenues 12,1 12,2 12,Reserve Fund 10,0 10,0 10,National Welfare Fund 6,5 7,7 8,Source: RF Ministry of Finance.
Revenues of the federal budget as in 2009-2011, as in the long term will decline in shares of GDP.
The basic grouinds for this is the decline of oil and gas sector share in GDP. Revenue from oil and gas in 2008 is expected to reach peak levels for the recent years, up to 11.2 per cent of GDP. But already in 2009, according to the Ministry of Finance forecast, oil and gas revenues will decrease by 9.1 per cent of GDP, in 2010 - by 7.7 per cent of GDP, in 2011 - by 6.9 per cent of GDP. Therefore, within three years, oil and gas revenues as a share of GDP will decline by nearly 40 per cent. According to the Minister of Finance A. Kudrin, 80 per cent decline in oil and gas revenues happens due to a decrease of the sector share in the GDP, while the remaining 20 per cent is due to declining oil prices.
Herewith, even if the price is kept at the level of USD 150 per barrel, there will be virtually no Budget indicators are based on the forecast of GDP growth in 2009 by 6.7 %, in 2010 - by 6.6 % of GDP, in 2011 - by 6.2 %, and on the basis of the price of Urals oil in 2009 at $ 95 per barrel, in 2010 to $ 90, in 2011 to $ 88.
changes in this trend. The key factor is the low growth rate of oil production as compared with GDP growth.
According to Russian Ministry of Economic Development estimates, it is anticipated that GDP growth in real terms for the years of 2009-2023 will make 2.7 times, while oil production during this period will be increased by only 7 per cent, gas production - by 28 per cent. A large backlog of oil and gas production from GDP growth due to a high degree of depletion of the major deposits, as well as low speed of the new fields development.
As a result of lower oil and gas revenues, the federal budget surplus will decrease, as well as the growth of the Reserve Fund and the National Welfare Fund. According to the Ministry of Finance forecast, after 2015-2017 there might be a necessity for spending the national funds due to the shortage of oil and gas revenues for financing public expenditures.
It is expected, that in 2009 budget expenditures will amount to 17.5 per cent of GDP, in 2010 to 17.4 of GDP and in 2011 to 16.7 per cent of GDP. Therefore, the decline in expenditures from 2009 to 2011 will make about 1 percentage points of GDP. It is worth noting, that in order to maintain the stability of public finances in the event of reducing the tax burden on the economy, budgetary expenditures will have to be reduced substantially more.
Russian Pension Fund budget for 2009 is formed in terms of income in the amount of RUR trillion, or 6.3 per cent of GDP, and amounting to RUR 2911 trillion in terms of expenditures, or 5.per cent of GDP. Expenditures for the basic part of labor pension, public pensions, monthly benefits to certain categories of citizens are estimared in accordance with adjusted consumer price indexes, as well as in view of bringing the amount of social pension in line with the minimum subsistence level in 2009. Funds also included for extension the federal budget in 2009 with operating expenditure commitments: compensation payments for the care of disabled individuals from RUR 500 to RUR 1200, the amount of funeral grant from RUR 1000 to RUR 4000 with further indexation with regard to the estimated inflation rate.
It is also worth noting, that no other federal budget expenditure line is growing at such rate as the pension system. In 2009 fiscal year the budget funds transfer to the RF Pension Fund will be extended by 0.66 per cent and make 2.8 per cent of GDP, or RUR 1676 trillion. In 2010, its growth is anticipated by 1 more percentage points of GDP, in 2011 by 0.5 per cent of GDP. Budget transfer to the RF Pension Fund in 2011 will make RUR 2.656 trillion, or 3.8 per cent of GDP.
In the future, the most significant negative impact on the pension system will provided by two trends: the demographic situation in the country and reduced oil and gas budget revenues. Since 2008, the number of active employees in the economy of Russia will begin reducing, and within the next three years their number will decline by 1.4 million people. The number of pensioners will increase by 1.5 million people. The ratio of the average value of pension versus average salary in 2008 is expected to reach 24.3 per cent.
Since 2010, in the framework of the forthcoming pension reform, it is planned to address all revenues of the National Welfare Fund to support pension system. According to the statement of the Ministry of Finance Head A. Kudrin, revenues of the National Welfare Fund are insufficient for adequate replenishment of the pension fund, and various options for supporting the pension system are under discussion, and the deficit funds to the RF PF will be covered from the federal budget.
To meet the needs of the pension system of Russia, the RF Ministry of Finance proposes since to increase the rate of unified social tax (UST) by 3 p.p., from 26 per cent to 29 per cent. This measure is proposed in addition to the proposal of the Ministry on indexation the UST rates in 2010, and bringing its effective rate to 26 per cent, while currentrly, in the absence of indexation the rate get reduced each year by 1-2 per cent. However, according to Minister of Finance, taking into account the growth of wages and the reduction of the working population, the measure of UST indexation will be insufficient to cover the deficit of the RF Pension Fund. Nevertheless, A. Kudrin considers it necessary to strive to achieve the average level of pensions of 30 per cent against the average wages in the country.
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