Kurs_anglyskogo_yazyka_dlya_finansistov

7.Is a deficit budget typical of Russia only?

8.Describe the budget system existing in Russia now.

9.What classification of revenues is accepted now?

10.What are the sources of revenues?

11.How are the budget revenues spent?

12.How is the problem of unequal possibilities for raising revenue in different regions of Russia solved?

13.How is the budget execution controlled?

In order to get prepared for participation in the class discussion of these questions, write several paragraphs on the following:

a) Finance and a financial system.

(Use: monetary relations, formation, distribution, turnover, network of institutions, surplus funds, financial intermediaries, to comprise, public, economic entities, functions)

b) A budget as a major instrument of a financial system.

(Use: to achieve priorities, to allocate, to distribute resources, revenue, expenditure, to exceed, to prepare, to forecast, macro-economic impact)

c) Budget organization and budget process in Russia.

(Use: federal, regional, local, to approve, consolidated, source of revenue, expenditure responsibilities, autonomy)

d) Revenue sources and revenue-sharing arrangements in Russia.

(Use: taxes, to transfer, subject of the Federation, fixed revenue, regulating revenue, balance among budgets, to levy taxes, to meet the cost of services, insufficient, subventions, to grant assistance, "equalization ")

Ex. 15. Prepare a short talk on the following:

a)If you were the prime minister, how would you spend the budget resources?

b)Say what you think about supervision over budget execution. If you have ever worked in the sphere of

public finance, say what you think about the treasury system and budget execution supervision.

с) People have long used machines to help process data. Are computers used effectively in finance? Have you ever had any problems that were caused by computers? If so, describe the situation. How might the problems have been avoided if the computer system had been managed better?

Ex. 16. While reading newspapers and watching TV programmes, pay attention to how the budget discussions are covered by the media. Is the general public interested in the debates? What do people think about "budget federalism"?

READING PRACTICE

Ex. 17. Read the text and name the facts from the text which are new to you:

Treasury

Despite the many changes and reforms in Russia over the past few years, budget execution still presents significant problems. There is a lack of efficient control of expenditure, of information on extra-budgetary funds, of a well-defined procedure for the allocation of funds between different levels of government. In addition, there are problems with the budget classification, the obsolete system of public accounts, weak debt and cash management practices.

In 1993, Russia began its work on setting up the Federal Treasury. It consists of the Main Department of the Federal Treasury of the Ministry of Finance of the Russian Federation and its territorial bodies in republics, areas, and regions. The tasks of the Treasury are the following: to organize and exercise control over the execution of the federal budget; to regulate relations between the federal budget and federal off-budget funds; to exercise control over the receipt and use of the funds; to regulate relations between the federal budget and budgets of subjects of the Federation; to make short-term projections of financial resources and to manage them; to collect and compile information about the position of federal finances, to manage, and service the state internal and external debt jointly with the Central Bank.

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The new Treasury is expected to require that all spending units should report their operations at the commitment, verification and payment stages. The plan is that after verification of budget allocation and compliance with existing authorization the Treasury will issue the actual payment orders against a unified Treasury account with the Central Bank. This will imply a far-reaching change of budgeting practices in Russia. The new mechanism will allow the government to exercise effective spending controls in order to have updated information on government expenditure and for debt and cash management purposes. The new Treasury is also expected to help remedy other deficiencies in the process of budget execution. Effective implementation of the new Treasury system will lead to changes outside the budget execution, such as budget classification and accounting standards.

Words you may need: despite prep несмотря на lack n недостаток obsolete adj устаревший

public account счет государственного учреждения

debt and cash management управление долгом и наличными средствами to exercise control осуществлять контроль

receipt n получение, поступление

internal and external debt внутренний и внешний долг jointly (with) совместно (с)

spending unit бюджетная единица commitment n (зд.) поручение verification n проверка, контроль authorization n разрешение

to issue payment orders выдавать платежные поручения updated adj обновленный, скорректированный

to remedy deficiencies исправлять недостатки accounting standards стандарты бухучета

Ex. 18. a) Read the article below quickly to find out the main facts about the reform of the financial system in Indonesia:

Reform of the Financial System: Indonesia

A key element of Indonesia's comprehensive adjustment effort in 1983, following a sharp decline in oil revenues and a weakening of the economy's finances, was a reform of the financial system. Before the reform, the major instruments for conducting monetary policy available to the central bank, Bank Indonesia (BI), were credit ceilings for individual banks, and interest rate controls for state banks.

Before the financial reform, the expansion of liquidity credits and net foreign assets had led to a rapid growth of reserve money, which left the banking system with a large volume of surplus funds. This excess liquidity together with interest rate controls produced distortions in the pattern of domestic financial intermediation. Moreover, since an increasing proportion of deposits was being placed in nonbank financial intermediaries which were not subject to either interest rate controls or credit ceilings, during this period, the effectiveness of monetary controls was weakened.

The financial reform included replacing the system of restrictions on financial institutions with a more indirect system of monetary control. Interest rate controls were eliminated, a wide range of loan categories were made ineligible for liquidity credits, credit ceilings on individual banks were eliminated, and a new mechanism of monetary control that relied principally on open market operations was introduced.

Since there were no domestic public debt instruments available for open market operations, BI began issuing its own debt instruments which could be readily marketed under the prevailing circumstances of excess liquidity. The sale and repurchase of these instruments allowed the central bank to absorb or inject bank reserves at its own initiative and to influence domestic money market conditions.

The most important success of the reform was the rapid growth of domestic currency deposits after June 1983 and the marked slowdown in the accumulation of foreign currency deposits, reflecting the increased confidence in the domestic banking system and its greater competitiveness. Moreover, the move to open-market operations as the principal instrument of monetary control greatly improved the authorities' technical ability to manage monetary and reserve aggregates. Indonesia was able to successfully put in place an indirect system of

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monetary and interest rate management despite the lack of a sophisticated money market at the outset of the liberalization process.

Words you may need:

credit ceiling кредитный потолок interest rate процентная ставка liquidity credit ликвидный кредит

net foreign assets чистые иностранные активы monetary control кредитно-денежный контроль eliminate v уничтожать; упразднять

ineligible adj не имеющий права

open-market operations операции на открытом рынке debt instrument долговое обязательство

excess liquidity избыточная ликвидность currency deposits валютные вклады marked slowdown заметное снижение

monetary and reserve aggregates денежные и резервные агрегаты at the outset в начале

b) Reread the article more carefully and complete the sentences given below using information from the article:

1.A key element of Indonesia's adjustment effort in 1983 was

2.Credit ceilings and interest rate controls were_______

3.Before the financial reform rapid growth of reserve money was caused by_______

4.The effectiveness of monetary controls was weakened because

5.In the course of the financial reform_______were eliminated.

6.BI began issuing its own debt instruments as_______

7. The Central Bank influenced the domestic money market conditions by_______

8.Domestic currency deposits______after June 1983.

9.Despite the lack of a sophisticated money market_______

UNIT 3. FISCAL MANAGEMENT

A. TEXT

FINANCIAL POLICY. FISCAL SPHERE

Financial policy is a very complex notion covering measures aimed at working out basic concepts, major guidelines, goals and objectives, as well as at creating an adequate financial mechanism and at directing financial activities of a country. Financial policy is based on strategic guidelines which set long-term and medium-term prospects for using financial resources and ensure attainment of major economic targets and solution of goals in the social sphere. At the same time a country pursuing its financial policy sets current goals and objectives connected with mobilization and effective utilization of resources and development of productive forces.

Over the past two decades financial problems have exacerbated the world over. Public debts have reached unsustainable levels in a growing number of industrial countries. This development and its results – higher interest rates, lower investment, and slower growth in living standards – have stimulated efforts by policymakers to find solutions to swollen budget deficits.

Central to these solutions is fiscal policy. Fiscal policy is the policy adopted by a government for raising revenue to meet expenditure.

For countries that now face unsustainable fiscal deficits, financial stabilization represents a top priority.

The answer to financial stabilization lies in the effectiveness of fiscal management – the principles, institutional arrangements, information flows, and techniques that govern the budget process and define fiscal relations between levels of government.

Most western nations operate some degree of fiscal federalism, which is the system of taxation and public

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expenditure in which revenue-raising powers and control over expenditure are vested in various levels of government' within a nation, ranging from the national government to the smallest unit of local government.

A system of multilevel finance may be justified in terms of allocative efficiency on the grounds that while some public goods, such as national defence, confer benefits on the nation as a whole, the benefits of other goods, such as refuse collection, are more limited in geographical incidence. It is argued that2 by making decisions concerning the provision and financing of the latter type of goods at the level of local rather than national governments, the best or optimal level of provision is more likely to be achieved.3

Since the onset of the reforms the Russian Federation has been in the process of creating a new system of taxation and rules to administer taxes and to distribute those taxes and expenditure responsibilities among levels of government.

B. DIALOGUE

EFFECTIVE FISCAL POLICY

Russian: What's the essence of effective fiscal policy?

Foreigner. You are raising a difficult question. In general, fiscal policy is the policy adopted by a government for raising revenue to meet expenditure.

R.: Yes, it's common knowledge that fiscal policy is a powerful tool in the hands of governments, it is a major factor determining macroeconorriic performance. Substantial evidence existsts,4 however, that some countries use this tool badly. As a result they have problems of internal and external balance, low growth rates and huge deficits.

F.: You are right, they do. But quite a number of governments seeking to overcome fiscal problems, work to design adequate fiscal policies. They give increasing attention to expenditure priorities and the structure of taxation.

R.: They introduce new taxes, don't they?

F.: Well, such measures are most unpopular. Governments give emphasis to raising tax elasticity, which enhances the ability of the tax system to generate increases in revenue without resort to new tax measures or rate increases. Countries try to broaden the tax base, reduce tax exemptions, and achieve a simplified and more easily administered tax system.

R.: More often than not, however,5 the budget deficit remains a problem for many countries. How do countries most often reduce the burden of budget deficit?

F.: It all depends on the country's economic and financial position. In principle, the ways are only too wellknown: borrowing from domestic bank and non-bank sources and borrowing from "the rest of the world", as economists say. Fiscal deficits can be rather easily reduced by countries having welldeveloped capital markets.

R.: True, but my feeling is that under fiscal crises, governments, first of all, cut spendings.

F.: Well, yes, some do. But governments seeking to pursue effective fiscal policy do their best to maintain the public deficit at a level consistent with other macroeconomic objectives like controlling inflation, promoting private investment and maintaining external creditworthiness. They work for most effective utilization of scarce government sector resources, for the allocation of resources to achieve growth and equity objectives.

R.: I see. Thus, tax and expenditure policy issues are central to an effective fiscal policy.

F.: Exactly. As far as I know, in Russia most of the revenue comes from four taxes. I mean the profit tax, the value-added tax (VAT), the personal income tax, and excise taxes.

R.: Yes, you are right. These taxes account for the bulk of the revenue. But in general, the system is still complicated, more than 150 taxes are collected in Russia: federal, regional and local.

F.: What about non-tax revenue, where does it come from in Russia?

R.: Mainly from privatization and sale of government securities. In spite of the efforts to improve the budget system, we still have a lot of confusion and intermingling of functions in our fiscal sphere.

F.: Streamlining of intergovernmental fiscal relations is a serious task for many governments.

Notes

1 are vested in various levels of government – переданы различным уровням власти

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2It is argued that... – Утверждают, что...

3... is likely to be achieved – ... по всей видимости, будет достигнут

Конструкция «is likely + инфинитив» называется «именительный падеж с инфинитивом» или «сложное подлежащее».

Этой конструкцией можно заменить сложноподчиненное предложение с главным предложением, выраженным безличным оборотом типа it is said 'говорят'; it is reported 'сообщают'; it seems, it is likely 'похоже, по-видимому' и т.п.:

It is said that they know English well.

They are said to know English well.

Оборот «сложное подлежащее» употребляется, когда сказуемое выражено:

1) глаголами to say, to state, to report, to announce, to believe, to consider, to hear, to suppose, to think, to expect, to know, to understand, to see в пассивной форме.

Перевод предложения со сложным подлежащим начинают со сказуемого, которое по-русски выражается неопределенно-личным оборотом «Известно ...», «Говорят...», «Сообщают» и т.д. Дальше строится дополнительное придаточное предложение, в котором роль сказуемого будет играть инфинитив. Перфектный инфинитив переводится глаголом прошедшего времени:

Non-tax revenues are reported to have	Сообщают, что с	прошлого года
considerably increased since last year.	неналоговые доходы существенно возросли.
2) глаголами to seem, to appear, to prove, to happen, to chance в активной форме:
I happened to be there at the time.	Случилось так, что в это время я был там.
3) оборотами to be likely, to be	unlikely, to be certain,	to be sure: They are likely to come.

Вероятно, они придут.

4Substantial evidence exists... – Имеются веские доказательства того, что ...

5More often than not, however... – Однако, гораздо чаще ...

VOCABULARY LIST

A.fiscal management [ f sk l 'm n m nt] управление государственным бюджетом fiscal sphere бюджетно-налоговая сфера

notion ['nou n] п понятие

major guidelines [ me ' a dla nz] основные направления long-term [ l 't :m] adj долгосрочный

medium-term [ mi:d m 't :m] adj среднесрочный attainment [ 'te nm nt] п достижение (чего-л.) current ['k r nt] adj текущий

productive forces [pr d kt v 'f :s z] производительные силы exacerbate [ 'z s be t] v ухудшать(ся)

public debt [ р bl k 'det] государственный долг

unsustainable [ ns s'te n bl] adj (id.) постоянный, трудно ликвидируемый swollen ['swoul n] adj раздуть

fiscal policy бюджетно-налоговая политика fiscal deficit дефицит бюджета

fiscal relations бюджетные отношения fiscal federalism бюджетный федерализм

revenue-raising powers ['pau z] полномочия по сбору доходов multilevel [ m lt 'lev l] adj многоуровневый

justify [' st fa ] v оправдывать, (зд.) считать целесообразным public goods общественный товар

refuse ['refju:s] collection сбор мусора incidence [' ns d ns] n (зд.)сфера охвата

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create [kri 'e t] v создавать

to administer [ d 'm n st ] taxes управлять сбором налогов В. essence ['es ns] n суть, сущность

internal balance [ n t :n l 'b l ns] состояние внутренних расчетов huge [hju: ] adj огромный

tax elasticity [ i:l s 't s t ] эластичность налоговой системы enhance [ n'ha:ns, n'h ns] v увеличивать, повышать

resort [r 'z :t] n обращение (за чём-л.)

to broaden [ 'br :dn] the tax base расширять налоговую базу tax exemption [ 'zemp n] освобождение от уплаты налогов capital market рынок долгосрочного капитала

consistent [k n 's st nt] аф'совместимый, согласующийся creditworthiness ['kred tw : n s] и кредитоспособность income tax подоходный налог

excise['eksa z] (tax) акцизный налог, акциз account [ 'kaunt] for v составлять non-tax revenue неналоговые доходы securities [s 'kju r t z] n pl ценные бумаги confusion [k n 'fju: n] n неразбериха

intermingling [ nt 'm l ] of functions (зд.) дублирование функций streamlining [ 'stri:mla n ] n (зд.) совершенствование

EXERCISES

Ex. 1. Answer these questions:

A.1. What does the notion "financial policy" mean?

2.Do many countries face financial problems these days? What are they?

3.What is fiscal policy?

4.What fiscal trends have been registered in the industrial countries since the early 1970s?

5.What does the effectiveness of fiscal management imply?

6.What is fiscal federalism?

7.What has been done in Russia so far in the field of fiscal relations?

8.What expenditure responsibilities are practised in Russia?

9.What measures should countries facing unsustainable fiscal deficits take?

B.1. Is fiscal policy a powerful tool in the hands of a government?

2.What are the major taxes in Russia these days?

3.Does the tax system provide for collection of a great number of taxes?

4.Where does non-tax revenue come from in Russia?

Ex. 2. Give derivatives of:
financial adj	collect v	effectiveness n
measure n	shift v	government n
objective n	consumption n	distribute v
unsustainable adj	transfer n	defense n
produce v

Ex. 3. Find English equivalents for the following Russian phrases from the text:

A. мероприятия, направленные на ...; создать соответствующий финансовый механизм; направлять деятельность; обеспечить достижение основных экономических показателей; эффективное использование ресурсов; проблемы обострились; уровень, который государство не может больше поддерживать; раздутый бюджетный дефицит; принять политику; финансовая стабилизация;

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управление государственным бюджетом; информационные потоки; полномочия по сбору доходов;

контроль за расходами;
B. получать доходы, покрывающие расходы; поддерживать желаемый	уровень	(чего-л.);

макроэкономические показатели; проблемы с внутренними/внешними расчетами; пытаться преодолеть бюджетно-налоговые проблемы; приоритеты в области расходов; укреплять (усиливать) способность; расширять налоговую базу; уменьшать число освобождений от уплаты налогов; легкоуправляемая налоговая система; бюджетный дефицит остается проблемой; сокращать расходы; поддержка частных инвестиций; внешняя кредитоспособность; доходы поступают от...; ... составляют большую часть всех доходов; приватизация.

Ex. 4. Say in a few words what the main text is about. Use the opening phrases from Ex. 4 (Unit 1).

Ex. 5. Sum up the content of the mam dialogue. Use the phrases from Ex. 5 (Unit 1). Ex. 6. Read the dialogue, translate the Russian remarks into English and act it out:

Foreigner: Is it true that the structural transformation of the Russian economy since 1992 has been accompanied by major changes in the country's fiscal picture?

Russian: Да, в бюджетно-налоговой политике произошли значительные изменения. Нам пришлось значительно сократить государственные расходы. Бюджеты субъектов федерации стали самостоятельными. Мы уделяем много внимания налоговому законодательству. Однако существует необходимость более эффективного управления государственным бюджетом.

F.: The market forces in your country emerged faster than your capacity to adjust the budget management practices to new conditions.

R.: Многие другие страны оказывались в сходной ситуации. Россия – федеративное государство. Нам также приходится решать различные вопросы, связанные с бюджетным федерализмом.

F.: Speaking about fiscal federalism, I think that neither the federal government nor the regional administrations are content with the present pattern of interbudgetary relations. How are you going to resolve the problems?

R.: Вы подняли очень важный вопрос. Мы пытаемся справедливо и рационально распределить обязанности и полномочия между регионами и центром. Возвращаясь к вопросу бюджетноналоговой политики и финансовой стабилизации в целом, хочу подчеркнуть, что нам необходимо сокращать бюджетный дефицит, контролировать инфляцию, поощрять инвестиционную деятельность, эффективно использовать имеющиеся ресурсы, а также совершенствовать налоговое законодательство.

F.: Doing all this you should remember that the task of the government is to help people who are living below the poverty line, pensioners, invalids, jobless. Benefits that you are now distributing among all should be given to the needy.

Ex. 7. Work on vocabulary and grammar.

a) Study the key words for the unit in the dictionary at the back of this book:

macroeconomic performance, deficit, management, taxes, revenues, expenditure, policy, taxation, balance of payments, trade, debt;

b) Think of the verbs that are most commonly used with these nouns:

taxes, decision, budget system, burden, attention, emphasis, guidelines, target, objectives, macroeconomic performance, policy, spendings;

c) Think of the nouns that are most often used with these verbs:

to introduce, to generate, to perfect, to attain, to overcome, to utilize, to adopt, to pursue, to cut;

d) Make your own sentences with any five word combinations from (b) and (c).

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e) Match the verbs from (a) with the nouns from (b) below:

a) to establish	b) difficulties
to face	efforts
to make	situation
to eliminate	deficit
to exacerbate	priorities
to improve	stability
to ensure	interbudgetary relations
to design	law
to enforce	policy

f) Write out from the main text international words like: concept, mechanism, etc. Transcribe and read them aloud.

Ex. 8. a) Supply the articles where necessary.

b)Write down 3-5 questions about the texts.

c)Compare the problems the two countries are trying to solve.

a) Financial Policy

... term is broad and its definition is likely to differ somewhat from country to country. On the widest definition, it covers ... fiscal policy (budgetary policy, i.e. policy on government revenues and expenditures), monetary policy, credit policy and management of government debt. The core of financial policy is fiscal policy. Some economists believe that fiscal policy is synonymous with ... state budgetary policy. There exists, however,... wider definition that would cover the policy on the level and composition of all central and local government revenues and expenditures.

Financial policy whose main goal is provision of financial resources for ... implementation of ... state programmes of economic and social development is part of ... complex of economic policies influencing ...

level and pattern of economic activity and income distribution.

The economic policy of... Russian Federation is aimed at creating conditions for sustained economic growth by reducing ... inflation, by ensuring ... free operation of markets of goods and factors of production, by achieving ... balance of payments stability. These goals can be achieved mainly by elaborating and implementing ... adequate fiscal policy.

The fiscal policy implemented these days in Russia presupposes first of all the reform of... federal budget. The ongoing budget reform includes ... shift to the new budget classification, introduction of ... better system of interbudgetary relations, changes of budget planning principles, shift to ... treasury system of budget execution. Over ... last few years the collection of tax revenue has tended to fall. Thus the Government's fiscal adjustment programme provides for a package of measures aimed at increasing revenue collection through the reform. Attention is being paid to improvement of ... tax legislation. The new tax administration system shall meet...

following requirements: broad tax base, well-balanced system, equitabable and transparent character, symplicity of administration. The main aim of ... tax reform is to strengthen ... budget, to provide financial resources for the budget system in the amount necessary to finance ... state spendings for ... state apparatus, for defence, health care, and ... culture.

Words you may need:

management of government debt управление государственным долгом core n сердцевина

treasury system of budget execution казначейская система исполнения бюджета

b) Fiscal Policy in the UK

Fiscal policy in ... UK is guided by two strict rules:

•... Government will borrow only to invest and not to fund current spending; and

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•net public debt as ... proportion of GDP will be held at ... stable and prudent level.

These rules mean that... taxpayers pay for ... current spending and require public borrowing to be kept under firm control.

The Finance Act 1998 established a new Code for Fiscal Stability, which requires fiscal and debt management policy to be carried out in accordance with five key principles:

•	transparency in setting fiscal policy objectives, the implementation of fiscal policy and the
	publication of the public accounts;

•stability in ... fiscal policy-making process and in ... way that fiscal policy affects ... economy;

•responsibility in the management of the public finances;

•fairness, including between ... generations; and

•efficiency in the design and implementation of fiscal policy, and in managing both sides of... public sector balance sheet.

In practice it means that the public finance and fiscal strategy in ... UK will be aimed at setting overall spending limits for individual departments and planning and controlling public expenditure more strictly within

... framework of capital and current budgets.

Ex. 9. a) Supply the prepositions where necessary, b) Write down 3-5 questions about the text.

Focus on Fiscal Consolidation

The past two decades have seen the development of a worrisome and unprecedented phenomenon – the ballooning of public debt in industrial countries during a period of general peace and economic prosperity. In the past, large but temporary budget deficits arose in response ... extreme circumstances, such as major wars or global economic depression. But these debt problems were transitory, because in their wake, governments tightened their belts and cut back ... spending.

A striking characteristic of modern fiscal imbalances is that they originate ... dramatically increased spending rather than falling revenues.

Economists identify several forces that may be behind these imbalances in industrial countries, including:

•The growth of public pension and social spending. Aging populations in industrial countries are growing dramatically, which means more elderly people to support, much higher health care bills, and a smaller share ... the population to work and pay taxes. These future liabilities dramatically worsen the budget prospects of industrial countries. According ... IMF staff estimates, public pension liabilities in 1994 exceeded 68 per cent ... GDP in all major industrial countries. The situation is even worse when commitments to provide future health care benefits are taken ... account. The bad news conveyed ...

these figures is that public pension programs are much more generous than governments are likely to be able to support. Future generations of workers will thus face ... either much higher tax burdens to maintain the levels of benefits or sharply reduced benefits;

•Unemployment benefits;

•The productivity slowdown since the early 1970s;

•Increased exchange rate flexibility since 1973 and growing

•integration of world capital markets, which make it easier for governments to run large budget deficits. Persistently high levels of government debt are a threat ... economic health. The heavy public debt burdens

in most industrial countries make it imperative ... governments to take unpopular and painful... people remedial actions.

Words you may need:

fiscal consolidation укрепление бюджетно-налоговой политики worrisome adj вызывающий беспокойство

balooning n раздувание, расширение transitory adj временный

in the wake of по следам, по пятам (чего-л.) to tighten one's belt затягивать пояс

public pension liabilities обязательства по выплате пенсий imperative adj настоятельный

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painful adj болезненный remedial adj (зд.) коррективный

Ex. 10. Open the brackets putting the verbs in the correct form:

Transition economies recently (to make) impressive steps towards reducing fiscal imbalances. Cuts of cash expenditure (to bring) about a decline of fiscal deficits for the CEE countries as a whole to about 4 per cent of GDP in 1995 from 10 per cent in 1994 on average. This was mainly the result of large reductions in enterprise subsidies, military spending, and capital expenditures. Despite these spending cuts, however, outlays for social services (such as schools and hospitals) and social security (to remain) relatively stable, relative to GDP. Over the same period, general government expenditures (to fall) on average to 30 per cent of GDP from 38 per cent. While the economies in transition (to make) solid progress over the past few years toward fiscal consolidation, macroeconomic stabilization (to require) additional reduction of inflation and successful implementation of:

•structural reforms, including reform of the tax system and the public expenditure system;

•improved revenue collection through elimination of loopholes, tax evasion and exemptions, broadening of the tax base;

•greater political leadership of the reform process – especially by formulating long-term fiscal adjustment policies.

Words you may need:

transition economies страны с переходной экономикой on average в среднем

loophole n лазейка

tax evasion уклонение от уплаты налогов leadership n руководство

Ex. 11. a) Fill each gap with a suitable word from the box.

b) Sum up the text in 5-7 sentences and present your summary in class.

repaid	reliance	leads
supply	adversely	bank
occur	reduced	limit
		Financing the Deficit

Since the early 1970s quite a number of countries have been experiencing serious financial problems which have caused growing budget deficits.

Trying to find solutions to swollen budget deficits, governments undertake austerity programmes, work out harsh budgets, implement macroeconomic stabilization, establish priorities for government spendings, analyse effects of different ways of financing their budget deficits.

In principle, budget deficits may be _____ by borrowing from domestic bank and nonbank sources, and from the rest of the world.

Excessive_____ on any of these methods of finance may be dangerous because:

•Government borrowing from the central_____directly affects the monetary base and the money_____. Excessive growth in the money supply leads to high inflation rates and balance-of-payments problems.

•Substantial borrowing from the nonbank sector may _____ affect the structure of demand and growth potential. In particular, this borrowing may_____the availability of resources to finance private investment. Such "crowding out" of private investment may_____ through the impact of government borrowing on domestic interest rates.

•Reliance on external finance_____to the accumulation of debt, which needs to be serviced and eventually_____.

A prudent fiscal policy permits a public deficit, but it must be maintained at a level consistent with other macroeconomic objectives: controlling inflation, promoting private investment, and maintaining external creditworthiness.

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