Page 67 - Russia OUTLOOK 2023

on its own doesn’t tell us the whole story of Russia’s ability to withstand low oil
prices or sanctions, in part because a deficit can be funded domestically. This
is exactly what Russia is doing. The government is financing the deficit by
running down assets in the National Wealth Fund (NWF) – a fund where
excess oil and gas tax revenues have been stored in recent years. More
recently, the government has returned to the bond market and issued RUB1.5
trillion ($2.5bn) of OFZ bonds (ruble-denominated debt) since October, a
record amount for two months. These two channels will be the main sources of
financing over the next three years,” Oxford Economics adds.

The NWF can realistically only be drawn down for two more years before it
runs out. The government is having to issue a large share of floating-rate
bonds to satisfy demand from banks, which exposes itself to more interest rate
risk. And there is a concern more broadly that large debt issuance crowds out
credit to the private sector.

With Russia 1%-2% of revenues due to lower oil prices (and the oil cap)
set at $60 in December, what are other sources of revenues of the Federal
budget? The most important revenues are VAT, profit taxes and excises.

The MinFin lacked creativity forecasting taxes as a constant to GDP. VAT is
Russia's second most important tax after oil and gas; it depends on domestic
consumption and imports. Profit taxes depend on the domestic economy and
dividends, with Gazprom being the largest payer,

How is Russia preparing to square the circle and live with lower oil and gas
revenues (with or without the cap as their assumed price goes down to $65 by

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