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With the world oil prices at a 25-year high, Russia's oil export revenues have increased dramatically
But according to Finance Minister Alexei Kudrin's forecasts, oil export sales won't be bringing in as much next year. Presenting a 2005 draft budget to a Cabinet session Monday, Mr Kudrin said that lower oil prices may reduce Russia's federal revenues by 0.7% of Gross Domestic Product next year. Next year's revenues will also go down owing to tax cuts (1.4% of the GDP), government reform (0.6% of the GDP), and other factors (0.7%), the Finance Minister said. The 2005 budget has been drawn up in such a way as to avoid crises and to make sure that the government delivers on its pledges, Mr Kudrin said. It is based on a macroeconomic development forecast made by the Economic Development and Trade Ministry, with the projected average annual price of oil put at $28 per barrel, the rouble/dollar exchange rate at R30/$1, and the inflation rate at $7.5-$8.5. The projected economic growth rate is 6.3% and the anticipated Gross Domestic Product is 18.72 trillion roubles, in absolute terms (the U.S. dollar now buys 29.22 roubles). Next year's budget increases defense spending by 28% and national security expenditures, by 26%, reported Mr Kudrin. The federal government is not planning to declassify more defense- and law-enforcement-related budget items next year than this year, he said, adding that all classified budget items would be discussed behind closed doors. Federal government spending is to increase substantially in areas such as national affairs (38%), culture & arts (17%), subsidies to the regions (16%), pensions and social security (14%), and welfare (12%), Mr Kudrin said. On the other hand, less money is to be spent on public health and education, owing to the transfer of control over public-sector institutions to regional governments, in keeping with an authority division law, he explained. The federal government's powers won't change much in 2005, with forty-eight percent of the budget to remain under federal control, against this year's 49%, Mr Kudrin said. The powers of regional and local governments, by contrast, are in for significant change, but importantly, revenue sources have been attached at every level. As much as 387 billion roubles is to flow next year into the stabilization fund, to amount to a projected 574 million by January 1, 2005. This will make it possible for 166 billion roubles to go to cover the Pension Fund deficit and settle the nation's foreign debt, Mr Kudrtin said. "We planned to borrow $2.5 billion on foreign markets, but stabilization revenues will make it possible for us to avoid borrowing," he explained. According to the minister, if used as replacement for foreign borrowing, the stabilization fund will amount to 720 billion roubles by January 1, 2006, instead of the 795.3 billion envisaged by the draft budget. The government will have to continue to stick to the tactic of holding back non-interest spending so that it won't surpass the rate of economic growth, Mr Kudrin said. According to him, the 2005 draft budget's non-interest expenditures in absolute terms are up 17.8%, at 421.9 billion roubles; federal expenditures are up 9.1%, at 388 billion. Next year will see cuts on direct subsidies to agricultural companies, Mr Kudrin announced. The government has done a lot to support the agribiz in 2004. According to the Finance Minister, the year has proved a key one in terms of the government's support for agriculture, not so much through direct subsidizing as through large-scale rescheduling of companies' debts, running in the dozens of billions of roubles. The 2005 draft budget provides for a 20% pay raise in the public sector. Some 2,270,000 federal public-sector workers will have their wages raised next year, Mr Kudrin said. According to him, 1.5 billion roubles is to be allocated for the support of small businesses and another 6 billion for the support of civil aviation. The Russian Finance Minister described the 2005 draft budget as an "embodiment of a large number of reforms." He noted that the government's recent efforts had made it possible to streamline the structure of federal target programs. In the overall capital spending structure, 21% is to be appropriated for capital expenditures in the national economy and another 23%, for regional development funds, Mr Kudrin said.
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