Page 64 - RusRPTMar21

Sova Capital ran a sensitivity analysis of the federal budget and found that with the current oil prices and RUB/$rate, the budget could receive an additional 2.3% of GDP, which would allow for additional spending on COVID-19 relief if the fiscal rule were suspended or additional funds were directed from the NWF towards infrastructure projects. “We think that social and business support packages could sustain the recovery momentum this year,” Sova said in a note.
Despite tax measures, non-oil revenue was nearly flat (excluding the Sberbank deal) at 11.6% of GDP in 2020. The initially projected deficit was higher, but authorities underspent by nearly 1% of GDP (RUB1trillion) in 2020.
Higher taxes for the general population and commodity producers could compensate for lower taxes in the IT sector.
The rule-based primary deficit, i.e. subtracting interest expenses, non-oil revenue and oil revenue from expenditures at a base price of $43.3/bbl in 2021, should fall from 2.8% of GDP in 2020 to 1.6% of GDP, on Sova’s estimates.
Moreover, the recent rally in oil prices and a persistently weak ruble could create tailwinds for the budget’s execution in 2021. Given the temporary freezing of the fiscal rule for 2020-21, which limits the deficit with revenue at $43/bbl, the funds could be used to boost Russia’s economic recovery or reduce OFZ supply pressures (RUB3.7trillion in gross borrowings) instead of accumulating funds for the NWF.
Sova ran a sensitivity analysis of the fiscal balance and additional oil and gas revenue. “We find that: Under our baseline scenario ($52/bbl and RUB/$rate of 72.2 in 2021), the fiscal deficit could ease 0.9ppts to 1.7% of GDP thanks to additional revenue of RUB1.24trillion ($17.1bn),” Sova said a note.
With the current oil prices and RUB/$rate ($62.6/bbl and 73.6, respectively), the fiscal deficit could drop to 0.3% of GDP thanks to RUB2.62trillion ($35.7bn) in extra oil revenue.
Additional spending via additional COVID-19 relief packages for the general population (RUB500bn) and businesses (RUB200bn) could bring the fiscal deficits in the two scenarios to 0.9% of GDP and 2.3% of GDP, respectively.
“We think that spending additional revenue on social and business support packages could sustain the momentum in the recovery of consumer income (which fell 3.5% y/y in 2020), support the most affected sectors (including SMEs) and re-start the economic cycle<” Sova concluded.
Elevated budget spending in January and rumoured plans of a social
64 RUSSIA Country Report March 2021 www.intellinews.com