If necessary, head of government staff Dmitry Kozak, Minister of Industry and Energy Viktor Khristenko. Minister of Agriculture and Fisheries Aleksei Gordeev, Minister of Defense Sergei Ivanov, and Minister of the Interior Rashid Nurgaliev (left to right) are prepared to find additional sources of economic growth.
Photo: ITAR-TASS
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Members of the Government Slow Down Growth
// Agenda
Yesterday, the government discussed the Ministry of Economic Development and Trade’s forecast of the country’s socioeconomic growth for 2005 and for the period to 2007, which will form the basis of the 2005 budget. The figures were revised at the very last moment: the pessimistic version of annual GDP growth for 2005–2007 was fixed at 4.8–4.9% and the optimistic version, at 6.1–6.2%. Of course, these forecasts will be revised again.
Calculation Tricks
Minister of Economic Development and Trade German Gref stood firm. Last Friday at an expanded Ministry of Finance board meeting, the president told the minister that the Ministry of Economic Development and Trade (MERT) would have to make more ambitious plans: in order to double GDP by 2010, the Russian economy would have to grow 7% per year rather than 4–6% as MERT had forecast. It would seem worthwhile for the minister to bring the forecast up to the required 7%, since the State Statistics Committee (Goskomstat) is now under German Gref’s department. However, the minister decided to stick to his own calculations: GDP growth to 2007 will even decrease slightly. For example, it will be 6.4% this year and 6.2% next year.
Nevertheless, the GDP parameters were bumped up a couple of points compared to the original plans that had disturbed the president. As the minister explained yesterday, they did not do this out of fear of imperial wrath but because international agencies had raised their forecasts for world oil prices based on first-quarter results. German Gref announced yesterday that world prices for Russian oil this year would average $23.50 per barrel according to the pessimistic scenario and $27.50 per barrel according to the optimistic scenario. In 2005, they would fall to $20 per barrel by the pessimistic scenario and only to $26 per barrel by the optimistic scenario (a price of $24 per barrel had been forecast before Wednesday night; evidently, these “international agencies” experienced a surge of optimism the day before the Russian government’s meeting). We note that today, Russian oil prices are “pushing thirty”, as the president put it. Nevertheless, MERT is basing its calculations on lower oil prices (an average price of $23.50 per barrel this year already appears unlikely). Thus, MERT ended up with a forecast of 6.4% GDP growth as of the end of this year, or lower than the figure demanded by the president.
All of this only confirms that each year the government will deliberately try to understate the forecasts. It is not inconceivable that growth will reach 7% at the end of the year after all. German Gref also said yesterday that the government’s economic policy, rather than oil prices, is gradually becoming the determining factor for GDP growth. According to the minister, the contribution of foreign economic factors to GDP growth will decrease to 2% this year and to 1.5% in 2005. At the same time, the contribution of internal factors will increase to about 4% this year and even to 5% by 2007. This leads to the conclusion that it is to the government’s advantage to understate GDP forecasts at this time, since credit for an increase in GDP in this situation will go to the government, not oil prices.
Deputy Prime-Minister Aleksandr Zhukov confirmed this conclusion. Responding to the question as to whether doubling GDP was realistic at the stated growth rates (at this point, German Gref had already left the White House to catch a plane to Brussels), he answered without hesitation that the government intended to find additional sources of economic growth.
Ambitious Plans
Whereas the president’s task of doubling GDP was accompanied by “little calculation tricks”, the government spoke openly yesterday about its intentions to fulfill the president’s second task, i.e., overcoming poverty in the country, amazing everyone with its forecasts. German Gref and Aleksandr Zhukov unanimously declared that real income of the population (i.e., income already adjusted for inflation) would increase 40% by 2007. According to MERT forecasts, income of the poorest sections of the population would grow fastest of all: at least 50% of the poor would no longer be so (as the president ordered on March 19).
The government also has ambitious plans to increase investment. As German Gref expressed it, “investment growth will be ahead of” GDP in the country. Next year it will be 11%. At the same time, foreign investments will once again flow into Russia. A net capital outflow will be replaced by an inflow.
Faster growth of investments is made possible by a contradiction existing in the budget: GDP growth is accompanied by an increase in the real effective ruble-to-dollar rate. MERT forecasts that the ruble will actually strengthen 7.9% based on this year’s results and 7% next year. As is well known, the increase in the real ruble rate resulting from an accelerated flow of petrodollars into the country (the Dutch disease) is causing a slowdown of economic growth due to increased imports. However, this contradiction is removed if the flow of petrodollars is transformed into rubles that go into domestic investment, assuming, of course, that the economy is able to digest them (the government is apparently convinced that it can).
The government’s plans to fight inflation are also ambitious. “For the first time in many years, it will be less than 10%,” Aleksandr Zhukov promised. Next year, the government plans to keep it within 9%. A more precise average annual figure will be fixed in July.
As expected, severe restrictions on increases in service rates of natural monopolies should also contribute to reduced inflation rates, with one important exception: gas rates will go up by 20% (11% above the level of inflation). Against this background, the forecast for electricity rates seems more than a little strange: despite the fact that it is generated mainly from this very same gas and not from firewood, electricity rates are scheduled to be only 1% above inflation. It is also hard to believe that railway freight rates will increase only by the consumer price index.
| Riddles of Russia’s Economic
Growth |
| Year |
GDP growth |
Optimistic scenario*
|
Pessimistic scenario *
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Average annual price of a barrel of
Urals oil ($) |
Optimistic scenario*
|
| 2000 |
10 |
26.9 |
18 |
17.4 |
20.2 |
| 2001 |
5.1 |
23 |
8.4 |
10 |
18.6 |
| 2002 |
4.7 |
23.7 |
0.7 |
2.6 |
15.1 |
| 2003 |
7.3 |
27.2 |
18.9 |
12.5 |
12 |
| 2004 |
6.4 |
6.4 |
27.5 |
27.5 |
8.7 |
| 2005 |
6.2 |
4.8 |
26 |
20 |
2.5 |
| 2006 |
6.1 |
4.9 |
24 |
20 |
4.5 |
| 2007 |
6.2 |
4.9 |
24 |
20 |
3.4 |
* MERT forecast for 2004–2007.
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Irina Granik
All the Article in Russian as of Mar. 26, 2004
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