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. Last Updated: 07/27/2016

State Won Deficit Victory Without Neglecting Wages

The government Monday basked in the rare glory of not only beating its targeted first quarter deficit by almost 40 percent, but of doing so without sacrificing wages.

"In the first quarter of 1999 the federal government paid 27 billion rubles ($1.1 billion) of salaries," First Deputy Finance Minister Viktor Khristenko said.

Part of the salaries were paid by drawing from the roughly 38 billion rubles earmarked for investments in industry, agriculture, infrastructure projects and scientific research, Khristenko said.

The Finance Ministry on Friday announced that the first quarter deficit was 20.6 billion rubles ($837 million), or 60 percent of budget target. Revenues were 89.2 billion rubles, almost 98 percent of the target, and outlays were 109.8 billion rubles, or 87.6 percent of target.

However, Khristenko acknowledged Monday that the government faces a lot of challenges on the budget front during the second quarter.

It therefore looks unlikely that the government will be able to pull off the same stunt again.

"Investment expenditures are usually conducted in the second half of the year and this is exactly what we are going to do," said Khristenko.

At the same time, the government will have to service looming debt obligations and pay higher salaries to its employees. As of April 1, the government indexed salaries to inflation.

"We hope that the regional governments will find sources of financing to pay the increased payroll," said Khristenko.

That is of course wishful thinking on the part of the first deputy finance minister, analysts said. By April 1, the regional governments had accumulated wage arrears of 9.3 billion rubles ($380 million). Although that debt is down from the 12.7 billion rubles the regions owed at the beginning of the year, the reduction came from 9.9 billion rubles in federal funds that were sent to the regions.

"Whatever the developments are, we will try to restrain ourselves to a 2 percent [primary] budget surplus," said Khristenko.

From the very start of the economic crisis, the International Monetary Fund urged the Russian government to show more care in its fiscal policies. But this will be a difficult task if all state promises are to be kept. The 1999 budget calls for 474 billion rubles in revenues, a figure the IMF has said needs to be increased sharply.

However, even a 2 percent primary budget surplus is better than the deficits that the government has been running for almost a decade.

Some analysts cast doubt on the government's forecasted surplus, saying the parliament elections in the autumn could blow a hole in Russia's fiscal responsibility. "There are elections coming due and it is difficult to estimate whether they will abstain from buying votes," said Peter Westin, an economist with Russian-European Center for Economic Policies.