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On Implementing the Budget

Finance Minister Aleksei Kudrin : In the first half of 2007 federal budget revenues amounted to 3,244 billion rubles. This is equivalent to 23,4 percent of GDP. This is 206,8 billion rubles more than the same period in 2006. Had oil prices in the first half of 2007 been higher, revenues would have been higher as well. But now oil prices have risen to what they were in the second half of 2006.

Expenditures amounted to 2,171 billion rubles, 317 billion rubles more than was spent in the first half of 2006. Therefore a slight decrease in income, mainly related to oil revenues, has not resulted in lower expenditures. On the contrary, when compared with last year spending has noticeably increased.

In connection with this the budgetary surplus amounted to 1,074 billion rubles. This is about 7,7 percent of the GDP of the past six months. Much of the funds contained in the surplus accumulate in the Stabilisation Fund. And in this respect one can compare the work done by the Stabilisation Fund with that of an instrument that protects our economy from the threat of inflation.

Let me give an example. From 1 August 2006 until 1 August 2007 the amount of money in the economy – the monetary mass – increased by 51 percent. This is a record increase for the Russian economy over the past few years. Without the Stabilisation Fund there would be even more money in our economy and we would have even higher inflation. Unfortunately, inflation in Russia remains high.

President Vladimir Putin : You know there are fears associated with unfavourable conditions in certain markets, including in North American markets. How will this affect our gold and currency reserves and the Stabilisation Fund?

Aleksei Kudrin : The rules that govern the Stabilisation Fund provide that the Stabilisation Fund is constructed so as to best protect itself and to ensure a timely utilisation of a number of currencies in the future. It will therefore protect the funds it contains from crises associated with a given currency or the collapse of certain currencies. For example, we made the decision to manage our Fund in the following way: 45 percent of our stock is kept as assets or securities that are denominated in U.S. dollars, 45 percent in securities denominated in euros, and 10 percent in pounds sterling. And because the dollar is falling against the euro we are benefiting from the fact that a significant portion of our Fund is denominated in euros.

I can summarise in the following way: the Stabilisation Fund was first used on 24 July 2006. In one year the Fund’s yield – measured as of 24 July 2007 – amounted to 9,5 percent in monetary terms. That is one of the very highest rates of return for such funds.

This implies that Finance Ministry and Central Bank employees responsible for governing these funds have, one could say, set a record when compared with similar funds in other countries. This is also linked to the favourable market conditions during this period. In the long-term we should expect somewhat lower returns but this year was very good. And as a result about 3,320 million USD of revenues were generated in one year because of the Fund.

In fact, the Fund generates income that is subsequently used to resolve economic, investment and social issues since the President’s Address [to the Federal Assembly] noted that a significant part of these funds (more than 300 billion) will be allocated to development institutions. As of next year the Future Generations’ Fund will work with the retirement savings of Russian citizens and be co-financed by the Russian Federation.

Therefore both protecting and expanding the Stabilisation Fund as a result of how it is being managed serves two purposes. First and foremost it stabilises the amount of money in our economy and reduces inflation. Secondly, it helps accomplish economic and social tasks.

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