Changes in structure of Russian budget spending, revenue could have pro-inflationary risks - central banker
MOSCOW. Aug 30 (Interfax) - Pro-inflationary risks can be created by changes in the structure of Russia's budget spending and revenues, not just an increase in the budget deficit, Central Bank of Russia (CBR) deputy governor Alexei Zabotkin said on Thursday.
"A responsible and balanced budget policy backed by the fiscal rule, which ensures the predictability of policy on the medium- and long-term horizon, is a key factor in maintaining macroeconomic stability and sustainable economic development. And even if the budget deficit does not widen, changes in the structure of budget expenditures and revenues can have certain pro-inflationary effects," Zabotkin said at a press conference on the publication of the CBR's draft monetary policy guidelines for 2025-2027.
Speaking about how the government's decision to reform the tax system will affect inflation, he said this depends more on how the additional revenue will be spent than on the scale of the tax hikes.
"Expenditures, not taxes, increase demand. The move to raise taxes itself is of a dis-inflationary nature, because if the government collects taxes and does not spend them it reduces demand in the economy [...], in any case the impact on inflation is negative," Zabotkin said.
"It's another matter that the government rarely raises taxes without changing anything on the spending side, so in terms of the influence of budget policy, it's important to have a comprehensive view on how taxes have changed, how spending has changed and, accordingly, how the budget deficit has changed. If taxes increased by the same amount as spending increased, then in the first approximation the effect is neutral. [...] But there could be secondary effects here," Zabotkin said.
He also said he does not see significant risks in the Finance Ministry's domestic borrowing strategy with an increase in placements of floating-rate bonds.
"Obviously, if we're in a situation of high rates, we will move toward a situation of lower rates as inflation slows. The fact that the Finance Ministry has returned to large amounts of borrowing in bonds with a floating coupon in the past few months will insure the Finance Ministry from overpaying compared to the long-term sustainable level of interest rates," Zabotkin said.
"As you recall, the level of the government debt is low by international standards, so the deficit is also within very moderate ranges for this year and, based on current budget projections, for the coming years. Therefore, honestly, it's difficult to see any significant risks for budget policy or that this might create some additional pro-inflationary effects," Zabotkin said.
