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. Last Updated: 07/27/2016

IMF Relaxes Target For Budget Deficit

Russian Finance Ministry officials said Friday that the International Monetary Fund had relaxed budget deficit targets that are conditions of its $10 billion loan because of sky-high government borrowing costs in the run-up to this summer's presidential election.


IMF and Russian officials earlier had indicated that certain terms of the loan had been eased, but had not given specific figures.


Jochen Wermuth, head of the Finance Ministry's economic expert group, said the budget deficit target for this year was adjusted from the initially agreed 4 percent of gross domestic product to 5.25 percent.


"There was a change in the deficit figure but there were no changes for the monetary program," he said, emphasizing that all government financing still must come from non-inflationary sources and not through printing money. He cited billions of dollars of loans from France and Germany, approved earlier this year, as sources of extra cash for Moscow.


The revised figure of 5.25 percent is "much closer to what we have now," said Pavel Zhukov, head of the macroeconomic department at the Finance Ministry, adding that the government is on track with this month's figures.


Wermuth said the IMF had agreed to review the parameters of the budget deficit after delaying payment of the $330 million July tranche of its three-year loan because of Russia's failure to meet the loan conditions and falling behind on projected tax collection.


IMF officials in Moscow could not be reached for comment Friday and traditionally have been tight-lipped about the terms of the Russia loan, the second biggest in the organization's history.


In the spring, IMF officials said they would be strict on the economic conditions of the loan deal but suggested they could take into account political factors out of the government's control -- notably, the pre-election fears in financial markets that drove yields on state securities as high as 200 percent in June.


The IMF's method of calculating Russia's budget deficit, unlike the Finance Ministry's, excludes payments of interest on government paper. But even by Russian calculations, the federal budget is supposed to have a deficit of 3.85 percent of GDP for the whole year.


Russian figures put the federal deficit in the first six months of the year at 4 percent of GDP, whereas the IMF put the gap at 6.3 percent, Reuters reported.


Wermuth said that while the cost of servicing domestic debt this year was originally set at 30 trillion rubles, the actual figure is already 90 trillion rubles.


Of the 60-trillion ruble differential, Wermuth said the IMF had agreed to increase the deficit target by 15 trillion rubles, while the "government should recover" the remaining 45 trillion rubles "through tax measures and sequestering" of state expenses.


The government already has announced or adopted a host of measures to raise revenues, including higher taxes on shuttle traders, threatened imposition of VAT on imports from Ukraine and a crackdown on tax dodgers.


Asked if the government will be able to meet the revised targets, one expert said: "It is feasible if there is enough political will to collect the taxes, and if there are no new [tax] privileges for Gazprom and the like.


"[Prime Minister Viktor] Chernomyrdin and [Central Bank head Sergei] Dubinin signed this new agreement and it's a very serious commitment," the expert said.