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Russia: Government Announces Sweeping Budget Cuts

  • Stephanie Baker

Moscow, 30 April 1998 (RFE/RL) -- The Russian government today proposed sweeping budget cuts in an effort to meet the conditions of a $10 billion loan package from the International Monetary Fund.

The Finance Ministry announced that it would slash spending by 12 percent, or 62.4 billion rubles ($10 billion), this year due to revenue shortfalls. The figure is nearly double the amount Prime Minister Sergei Kiriyenko proposed last week.

The cuts, discussed at a cabinet meeting today, were drawn up on the basis of revenue collection figures in the first quarter, which fell short of targets.

An IMF mission is in Moscow this week reviewing Russia's macro-economic performance in the first quarter. The head of the IMF's Moscow office, Martin Gilman, has expressed concern about poor revenue collection so far this year, which could block the release of a 700 million dollar-loan payment expected in May. The IMF has previously suspended payments because of the government's inability to meet tax collection targets.

But Russia's Finance Minister Mikhail Zadornov told a news conference today that the talks with the IMF are going well and the next tranche should be released by the end of May or beginning of June.

Russia, faced with chronically low tax revenues, relies on IMF funding to cover budget holes and pay off wage arrears to public sector workers. A vote of confidence from the IMF would also ease the government's ability to raise funds on international and domestic markets.

Zadornov acknowledged that the government had failed to meet IMF revenue targets in the first three months of the year, but he said overall revenue collection this year had improved.

The government this year banned the use of monetary offsets, or debt cancellation, for tax collection purposes, demanding all payments in cash. While cash collections are up, the new rules have made it harder for cash-starved companies to pay their tax bills. At the same time, the fall in world oil prices has hit the budget hard as Russian oil companies are paying less taxes because of reduced profits.

Zadornov explained that the spending cuts are not an effort to "sequester" the budget, as the government did last year. Instead, he said the cuts will streamline spending by targeting government waste. The number of state workers will be reduced, he said, while inefficient spending on health and defense programs will be eliminated.

The cuts are in line with the so-called Kudrin-Fischer plan, named after First Deputy Finance Minister Alexei Kudrin and IMF deputy managing director Stanley Fischer. The plan focuses on structural reforms and reducing the size of Russia's bureaucracy.

Zadornov also announced that the government would double the amount it receives from privatization this year, signaling that there will be a strong push this year to sell off state assets. He said the government is now targeting 15 billion rubles ($2.4 billion) from privatization, instead of 8 billion rubles.

The government is planning to sell a 75 percent stake in Rosneft, the last major state oil company, at a starting price of about 2 billion dollars. But oil companies interested in bidding have said the government is asking too much.

While Zadornov remains in charge of the Finance Ministry, he will now have to answer to his former deputy, Viktor Khristenko, who was promoted this week to Deputy Prime Minister of a revamped cabinet. Khristenko, who previously served as deputy finance minister, is a little-known figure who has now been put in charge of economic reforms. He takes over from former First Deputy Prime Minister Anatoly Chubais, who was ousted during the cabinet shake-up last month.

Khristenko has been handed what many consider an impossible job: cleaning up financial relations between the federal and regional governments and ensuring that wage arrears are paid off.