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. Last Updated: 07/27/2016

Government Reaps $17.3Bln Surplus




Government coffers have filled up to create a budget surplus for the first half of this year of 48.6 billion rubles ($17.3 billion), or 1.6 percent of gross domestic product, Finance Minister Alexei Kudrin said Wednesday.


"For the first time in the last few years, the budget has racked up an absolute surplus," Kudrin, who is also a deputy prime minister, said Wednesday at a news conference.


Aided mainly by increased tariffs levied on exporters raking in hard currency on the back of soaring world oil prices, the government has been able to boost revenues over and above this year's budget.


A primary surplus of 4.8 percent of GDP, or 142.8 billion rubles, has been generated over the first six months of the year against a planned surplus of 3 percent, he said.


A primary budget surplus excludes foreign debt servicing.


Kudrin said higher tax collection had helped top off state coffers this year. In the first six months, tax income was up to 10.2 percent of GDP, compared to 7.4 percent in the same period in 1999 and 6.6 percent the year before that, he said.


The government's priority is to use the extra revenue to pay off the nation's hefty debt burden, he said, warning that the government could not afford to sit on its laurels as even greater payments on foreign debt loom.


"It's the government's principal position that not only should there be no increase in the debt burden, but that it should be lowered," he said. "We need to liquidate the risks that are waiting for us on debt payments in the next three to four years.


"We cannot allow a repeat of what happened in 1998."


Kudrin said success in monetary-credit policy so far meant the government would have no need for loans from the International Monetary Fund in the next few months and possibly not this year.


He said an IMF mission would arrive Tuesday to discuss the government's new action plan.


A new loan program could be approved by fall and Russia could be receiving the first fresh loans by the end of the year, ending a hiatus in lending for what would be over one year because of Western concerns about military action in Chechnya, Kudrin said.


The delay in presenting the plan to the Fund's board was because the government had to wait until all the key changes to the Tax Code had been approved, he said.


The government was not going "to rush into issuing new Eurobonds soon," but would seek to integrate Russia into the world economy by lowering customs barriers and raising transparency, Kudrin said.


Crushing foreign debts meant that Russia would still be forced to ask for debt forgiveness of part of what it owes to the Paris Club of creditor nations, he said. He declined to put a figure on the percentage the government would ask the club to write off.


Analysts also warned Wednesday that Russia was not out of the woods yet on meeting foreign debt payments.


According to figures provided by Natalya Orlova, an economist at Alfa Capital, external debt payments will a total of between $14 billion and $16 billion in 2003, depending on how much the Paris Club agrees to write off. That's up from around $11 billion in both 2001 and 2002 and up from $10.2 billion this year.


"The government's success in raking in revenues is being chiefly accrued through increased export tariffs thanks to the growth in oil prices," Orlova said. "Things could get difficult for the government in future years because the oil price seems bound to drop, and we don't know yet whether economic growth is sustainable."


Kudrin said the main measures the government would take to reduce the risks would be to maintain a zero-deficit budget and continue to try to reduce the debt burden.


He also said the government planned to put the brakes on inflation by sterilizing the money supply through using budget surpluses to pay off foreign debts and perhaps debts owed to the Central Bank.


He said it would aim to keep the ruble nominally stable.


However, Central Bank chief Viktor Gerashchenko weighed in later Wednesday by saying the best way to dampen rising inflation would be for the government to make inroads into paying off massive debts to the Central Bank.


Gerashchenko said the Finance Ministry's debts to the Central Bank rose by 160 billion rubles ($5.7 billion) last year alone.


"If the Finance Ministry begins to pay off the debts using its budget surplus, the increase in monetary mass will be sterilized," Gerashchenko said.


He said the bank was now in negotiations with the government over payment of the debts. Kudrin, however, seemed less keen Wednesday on kick-starting payment of debts to the bank. He said using the surplus to pay off foreign debts was just as good a way of combating inflation and sterilizing the growing monetary mass.


Former Finance Minister Mikhail Zadornov had said in a telephone interview the government's debts to the Central Bank total $6.5 billion in loans and 240 billion rubles in treasury bills that are sitting in the bank's accounts.