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According to the draft for 2021 budget revenues will amount to RUB18.8 trillion, expenditures to RUB21.52 trillion and the deficit to RUB2.75 trillion, or 2.4% of GDP. The deficit is less than earlier projections that the deficit could reach 5% of GDP this year.
“There were no principal changes made to the approved budget compared to the draft submitted by the Cabinet in late September. A projected weak state of the economy coupled with higher spending on social programs and healthcare means that the budget will remain in deficit: -2.4% of GDP in 2021, -1% in 2022 and -1.1% in 2023,” BSC Global Markets chief economist Vladimir Tikhomirov said in a note.
“This even though starting next year revenue will be boosted by higher mineral extraction tax (MET), withdrawal of some tax exemptions for oil and gas and increased taxes for high-income earners. However, the government has no plans to cover these deficits from the National Welfare Fund; the prime source for deficit funding will be new domestic public debt (annual gross issues will be in RUB2.1-2.9 trillion range),” Tikhomirov added.
Although the budget has been approved it is still likely to undergo some revisions next year say analysts. But given full support from the pro-Kremlin majority faction in the Duma, there is no doubt that the budget will be approved in second and third readings before the end of November.
The problem is the situation remains fluid as the coronavirus (COVID-19) epidemic rapidly gathers new momentum as the cold weather arrives and people move indoors. On top of that a victory by Joe Biden in the US presidential elections looks increasingly likely and that is expected to bring a new round of sanctions.
The second reading of the budget bill is scheduled for 24 November.
How will MinFin cover the 2.4% GDP deficit planned for 2021? The primary source of financing is to be net debt issuance – but MinFin guides that next year net issuance will decline from RUB4.4 trillion in 2020 to RUB2.9 trillion in 2021 and then further to just RUB2.1 trillion in 2022 as the whole budget becomes aligned with the pre-COVID version of the Fiscal Rule. Does MinFin plan to issue externally in the coming years? Yes, MinFin’s plan almost shows plans to issue $3bn per year in the coming three years (even as MinFin claims to assume that the current external financial restrictions will persist), but we note that this is not a binding commitment – MinFin can and does choose depending on the perceived market conditions.
The budget draft shows that National Projects spending will decline by RUB210bn in 2021 relative to the pre-COVID plans, with the most significant
64 RUSSIA Country Report November 2020 www.intellinews.com
