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. Last Updated: 07/27/2016

Experts: Budget Fears No Cause for Alarm

Warnings by a top finance official that the government will not be able to fulfill its 1995 budget targets are no great cause for alarm as yet, economic analysts said Thursday.

Finance Minister Vladimir Panskov had said in a report to the State Duma on Wednesday that although first-quarter tax revenues were on target, funds allocated to pay the budget deficit had fallen short by nearly half.

"So far the budget is all right," said a Western economist, who declined to be named. "You can say that it is a budget that will be difficult to implement, because it is a tight budget, and pressures will mount."

Panskov conceded as much Wednesday, telling legislators -- and lobbies -- essentially that the government's first priority will be financing the budget deficit and that if revenues fall short, some "unprotected" expenditures in the budget, such as defense and discretionary spending, would suffer.

There has been a great deal of tit-for-tat recently between the government and legislators over the progress of the economic stabilization program and the budget in particular.

A report by the Duma's Budget Committee criticized the government Monday for overblowing its achievements in cutting the budget deficit, saying it was not fulfilling its duty to close the gap through noninflationary means.

While Panskov said the government's privatization program, customs duties and foreign aid payments were not generating enough revenue to cover the deficit, he said tax revenues were coming in nearly on the mark.

One economist said, though, that tax revenues must meet the targets in real -- not nominal -- terms.

"Having high inflation, we would expect high tax revenues in nominal terms, but they must be the same as was planned in real terms, i.e., as a percentage" of gross domestic product, said Pavel Teplukhin, an economist with the government's Working Center for Economic Reform.

Teplukhin said the budget projected profits-tax revenues at a monthly average of 2.6 percent of GDP, but they came in at 1.7 percent in January and 1.5 percent in February.

Teplukhin said the overall budget deficit in the first two months of 1995 was only 1.4 percent of GDP. But, he said, this was a result of lower than expected government spending.

The deficit is "not bad, but it was possible to achieve this only because the government didn't spend all the money it was supposed to spend during the first two months of the year," said Teplukhin. Defense is one sector where spending is sharply down over last year. Teplukhin said Panskov put defense spending in the first two months of the year at 2.5 percent of GDP as opposed to 4.7 percent in the same period in 1994.

"The drop was quite significant," said Teplukhin. "It means that in the near future the government will have very serious problems similar to last year, i.e., budget arrears," he said, referring to an interenterprise payments crunch which sparked secondary market trading of promissory notes.

Squabbling in the halls of power was not confined to budget issues Thursday. Prime Minister Viktor Chernomyrdin rejected a Cabinet proposal for attracting foreign and domestic investment into the economy.

"The prime minister decided not to accept the program because of the vagueness and blurriness of some of the proposals," Deputy Economics Minister Vladimir Kossov said in an interview. "He said it was actually too philosophical and vague."

Kossov said part of the program -- involving a series of two presidential decrees, 12 laws and 35 government orders -- was meant to be a "national regime" not differentiating between local and foreign investors.

Kossov said, though, that a level playing field was not always desirable.

"If we want to have success in some ways we should use a system of privileges," he added.

--Pyotr Yudin contributed to this article.