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At the end of the period between January and July 2005, the RF consolidated budget revenues accounted for 37.6% of GDP against 33.1% of GDP over the corresponding period in 2004. The RF consolidated budget expenditures declined slightly as compared to the corresponding parameter in 2004 ( 27.0% ) and accounted for 26.7% of GDP. Surplus of the RF consolidated budget accounted for 11.0% of GDP in the period between January and July 2005, which exceeds considerably the corresponding parameter in 2004 ( 6.1% ). Hence there was a marked growth in the RF consolidated budget revenues in 2005 at the backgrounds of almost unchanged expenditures, which resulted in such a considerable growth in the budget surplus.

As of September 1, 2005, the value of the RF Stabilization Fund totaled 832.1 bln rubles against 721.0 bln rubles as of August 1 of the same year.

Table 3.

Execution of the RF Consolidated Budget in the Period Between January and July 2005 ( in terms of percentage of GDP ) I II III IV V VI VII VIII IX X XI XII Taxes* 28.7% 23.6% 24.3% 26.5% 26.6% 25.9% 26.4% 25.9% 25.2% 25.4% 25.4% 25.5% Revenues 32.9% 31.3% 31.4% 33.6% 33.6% 32.7% 33.3% 32.5% 31.7% 32.0% 32.1% 32.1% Expenditures 18.3% 23.7% 26.0% 28.4% 28.4% 28.8% 29.1% 28.9% 28.4% 29.3% 29.7% 31.1% Deficit / 7.7% 5.4% 5.3% 5.2% 3.8% 4.2% 3.7% 3.3% 2.7% 2.4% 1.0% 14.6% Surplus I II III IV V VI VII VIII IX X XI XII Taxes* 25.6% 24.4% 25.6% 27.4% 27.1% 26.0% 26.1% 25.7% 25.0% 25.0% 25.1% 25.2% Revenues 32.0% 30.3% 31.5% 33.4% 33.6% 32.2% 32.2% 31.6% 30.9% 30.8% 30.7% 31.1% Expenditures 20.7% 25.3% 27.7% 28.8% 28.8% 28.6% 28.7% 28.5% 28.2% 27.8% 27.9% 29.7% Deficit / 11.3% 5.0% 3.8% 4.5% 4.7% 3.5% 3.6% 3.1% 2.7% 3.0% 2.8% 1.4% Surplus I II III IV V VI VII VIII IX X XI XII Taxes* 6.1% 21.8% 27.4% 27.4% 26.6% 27.2% 27.1% 26.4% 26.5% 26.9% 26.8% Revenues 30.6% 28.2% 29.8% 32.9% 32.9% 32.5% 33.1% 32.9% 31.9% 32.0% 32.3% 32.3% Expenditures 18.5% 22.8% 25.4% 27.3% 26.9% 27.0% 27.0% 26.9% 26.0% 25.9% 26.1% 27.8% Deficit / 12.1% 5.4% 4.4% 5.6% 6.0% 5.5% 6.1% 6.0% 5.9% 6.1% 6.2% 4.5% Surplus I II III IV V VI VII VIII IX X XI XII Revenues 48.8% 40.3% 40.3% 40.8% 38.8% 38.2% 37.6% Expenditures 22.2% 23.3% 24.9% 27.1% 26.5% 26.6% 26.7% Deficit / 26.5% 17.0% 15.4% 13.7% 12.3% 11.6% 11.0% Surplus Main Events in Budgetary Sector Some officials of the RF Ministry of Finance made their comments regarding the tax load reduction.. A Deputy Minister of Finances S. Shatalov said that the tax load would be kept being reduced within the period between 2006 and 2008 as compared to the level of the last few years, i.e. nearly 1% of GDP annually. The tax system of the Russian Federation is at the final stage of the reform because the key measures aimed at its improvement took place in the period between 2001 and 2004, added the Deputy Minister of Finances. He also stated that differentiation of the Mineral Tax rate is not expected to be introduced until 2007. In spite of the fact that the existing taxation rules resulted in a considerable increase in the price rent arising under the conditions of high world oil prices, as well as improved efficiency of preventive measures against tax evasion by using transfer pricing, the unified tax rate ensures no consideration of objective factors governed by specific features of various mineral deposits. In this respect, the differentiation of the Mineral Tax rate by geological, economic and geographical factors will partially resolve the existing problems in this field.

An information emerged on September 22, 2005 that the RF Government is going to submit a draft law to make amendments to the RF Law УOn the Federal Budget for 2005Ф for consideration of the State Duma early in October 2005. This draft law provides for an increase in the federal budget expenditures for various items to be compensated by additional inflow of revenues ( additional allocation of 15 bln rubles to the constituent entities of the Russian Federation to compensate the growth in prices of petroleum, oil and lubricants, and more than 8 bln rubles will be allocated to power ministries ).

A draft law on the federal budget for 2006 passed the first reading at he State Duma on the same day. The draft law predicts budget revenues to be at the level of 5 046.137 bln rubles ( 20.7% of GDP), budget expenditures - 4 270.114 bln rubles ( 17.5% of GDP ), and budget surplus - 776.bln rubles ( 3.18% of GDP ).

Polevoi D.

Monetary Policy in the Russian Federation Consumer prices slowed down in August 2005 for the first time since August 2003 - the consumer price index equaled to -0.1% in August 2005 - due to a 13% decline in prices of fruits and vegetables in this month. The money supply continued to grow in the Russian Federation: the monetary base (comprising cash in circulation and credit organizationsТ required reserve balances with the RF Central Bank ) increased by 2%. The value of the RF gold and foreign exchange reserves exceeded bln US dollars.

The value of the consumer price index was -0.1% in August 2005 ( as compared to 0.4% in August 2004 ( see Fig. 1)). Growth in the rates of fee-based services to the general public increased by 0.8% in June this year ( as compared to 1% in August 2004 ) and were mainly responsible for the price development in July ( for three successive months ). Fee-based services to the general public grew at the same rates as in the period between April and May of the current year: the growth rate by 0.8% is minimal for this category in 2005. The rates of educational services, passenger transportation services and preschool education services grew most of all - by 1.5%, 1.2% and 1.2% respectively in August.

The municipal housing economy services grew by not more than 0.7% in August Prices of food products declined by 1% in August ( as compared to +0.1% in August 2004 ). Hence deflation took place in August of the current year. It is the decline in prices of fruits and vegetables that was above all responsible for overall price drop. It should be noted that fruits and vegetables was the only group that saw the price drop in August 2005. Cereals and legumes, red meat and poultry meat grew most of all by the end of the month - by +0.6%, +0.7% correspondingly. Nevertheless, a considerable drop in prices of fruits and vegetables was responsible for overall decline in inflation in the group of food products.

Prices of non-food products grew by an average of 0.5% ( as compared to 0.6% in August 2004 ).

Prices of motor gasoline grew most of all, by +2.2%, which caused the rates of non-food products to grow as compared to July of the current year when it was no more than 0.4%. Only the prices of TV and radio products dropped by -0.2% in August 2005.

The basic consumer price index 4 has grown by no more than 5.5% since the beginning of 2005 ( against 5.8% in the corresponding period of the previous year ). Prices of fruits and vegetables are expected to continue declining in September 2005. A considerable price rise of gasoline may lead to a long lasting inflation. The value of the consumer price index is 0.4% in September, according to the preliminary estimates.

The value of consumer price index accounted for 0.4% in September, according to the preliminary estimates.

The wide monetary base5 grew by 75,5 bln rubles to reach 2.42 trillion rubles ( + 3.2% ) in August 2005. The volume of wide monetary base equaled 2,35 trillion rubles as of August 1, 2005. Let us consider the movement of the wide monetary base by component.

Cash money in circulation including cash balances at credit organizations accounted for 1.81 trillion rubles as of September 1, 2005 ( + 0.04% as compared to August 1, 2005 ), correspondent accounts of credit organizations with the Bank of Russia amounted to 316,7 bln rubles ( + 17.5% ), required reserves amounted to 144,7 bln rubles ( + 1.8% ), banksТ deposits in the Bank of Russia accounted for 50,8 bln rubles ( + 68.2% ), the value of the bonds of the Bank of Russia at credit organizations was 92,5 bln rubles ( + 7.2% ), RF Central BankТs obligations for repurchasing of securities amounted to 0 bln rubles ( no changes as compared to August 1, 2005 ), and currency transactions reserves deposited with the Bank of Russia amounted to 6,3 bln rubles ( - 20.3% ). Hence it is positive in terms of The reference consumer price index is an indicator which reflects inflation level in the consumer market without consideration of a seasonal ( prices of food products ) and administrative ( tariffs of regulated types of services, etc. ) factors. The reference consumer price index is normally calculated by the Statistical Service of the Russian Federation.

The wide monetary base of the Russian Federation includes correspondent account balances deposited by credit organizations and banks with the Bank of Russia as well as active cash money issued by the Bank of Russia and account balances of compulsory reserves deposited with the Bank of Russia by credit organizations in borrowing funds in national currency.

inflation prospects that in spite of the growth in money supply, the volume of its most liquid portion ( cash money ) grew insignificantly in August 2005.

Fig. 1.

The Growth Rate of the CPI in 2002 - 2004 (% per month) 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Fig. 2.

Changes in the Monetary Base and in the Gold and Foreign Currency Reserves in 2003 - 1950 1450 Monetary Base (billion rubles) Gold and Foreign Currency Reserves (billion dollars) The growth in the volume of cash money in circulation ( + 0.04% ) with simultaneous increase in required reserves ( + 1.8% ) in July 2005 resulted in that the monetary base ( comprising cash in circulation and credit organizationsТ required reserve balances with the RF Central Bank )6 widened by 2% ( see Figure 2 ). In addition, the RF gold and foreign exchange reserves of the RF Central It will be recalled that wide monetary base represents national currency liabilities of the Bank of Russia rather than a monetary aggregate. The monetary base is a monetary aggregate ( one of the parameters representing money supply volume ) which is fully controlled by the RF Central Bank.

Jul Jul Jul Jul Jan Jan Jan Jan Sep Sep Sep Mar Mar Mar Mar Nov Nov Nov May May May May billion rubles billion dollars 1-7.12.2-8.02.8-14.09.6-13.04.9-15.06.17-23.08.20-26.10.10-16.11.22-28.12.12-18.01.16-22.03.19-25.05.21-27.07.11-17.08.27.07-2.08.29.09-5.10.28.04-4.05.30.06-6.07.23.02-01.03.( see Figure 2 ). In addition, the RF gold and foreign exchange reserves of the RF Central Bank increased ( + 3.5% ) in July and totaled 149,8 bln US dollars as of September 1, 2005. The monetary base and the RF gold and foreign exchange reserves increased by 1.3% and 4.6% correspondingly during the first three weeks of September. The RF Stabilization Fund which totaled 832.1 bln rubles as of September 1, 2005 due to inflowing liquidity to Russian.

The RF Ministry of Finance made transfers to the amount of 927,7 ml US dollars in repayment of the Russian foreign debt in September this year. Repayment of the principal totaled 250.9 ml US dollars with the interest being 676,8 ml US dollars. Russia may transfer about 10 bln US dollars in early repayment of a portion of its foreign debt to the Paris Club of creditors, according to the representatives of the RF Ministry of Finance. It is a reminder that the Russian Federation already transferred over 15 bln US dollars in early repayment of its foreign debt in summer 2005. The current debt of the Russian Federation to the Paris Club of creditors accounts for more than 30% of the total foreign debt of this country.

P. Trunin Financial Markets The Russian financial market was dominated by an extremely favorable situation in September 2005. The yield of the Russian foreign exchange bonds reached its historical peaks in the same period.

Investment activity increased markedly in the ruble state debt market. The foreign exchange market was dominated by a trend for the US dollar gaining versus the Russian ruble. The stock market reached another historical peals and the RTS index approached closely 1000 points. This can be explained by a high prices of oil and metals, favorable macroeconomic situation, positive corporate news, as well as a certain decline in political risks.

Government Bond Market Quotations of the Russian foreign exchange bonds reached historical peaks in September 2005 and stood close to these peaks throughout the entire month. The news that MoodyТs was likely to upgrade the Russian sovereign credit rating was a key factor that caused these quotations to go upwards. This was followed by a slight decline reflecting the movement of US debt securities which are considered as the key pointer by investors all over the world. The government bonds market was governed totally by the movement of the US debt securities quotations in the second half of the month, whose growth encouraged a favorable situation in the market and its Russian segment.

According to the data available as of September 23, the yield to maturity of the RUS 30 and RUS 18 Russian Eurobonds accounted for 5.21% and 5.29% per annum respectively. The yield of Russian Eurobonds on the similar date was as follows: 5.09% for 7 tranche Minfin Bonds, 4.47% for 6 tranche Minfin Bonds, 4.81% for 5 tranche Minfin Bonds, and 4.38% for RUS-07.

The yield in the ruble government bonds market reached its historical minimums at the background of a considerably increased turnover in the beginning of the month. The securities were supported by the news that MoodyТs was likely to upgrade the Russian sovereign credit rating, as well as a positive trend of the Russian foreign exchange bonds. Quotations continued to grow in the first half of the second week in September but slightly dropped due to the fact that market participants fixed their profit near the end of the week. All in all, investors kept being extremely active, owing to which the weekly turnover in the secondary market reached 37.9 bln rubles, i.e. its highest peak since the beginning of the current year. Primary placements were also successful due to an adequate liquidity. The situation experience no drastic changed in the second half of the month: quotations continued to gradually grow.

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