Page 72 - Russia OUTLOOK 2023

The oil price cap of $60 introduced on December 5 is not expected to
have much of an impact on the budget deficit in 2023. The deficit in 2023
is anticipated to increase from earlier estimates of 2% to GDP to 3%,
according to IIF. With an oil price cap of $60 the 2023 deficit is predicted to
widen to ~3% of GDP, up from the previously forecast of 2%. Russia has
plenty of resources to cover this hole.

The oil price cap also means that Russia's debt-to-GDP ratio will be 17%. The
Ministry of Finance (MinFin) has already said that it will increase the amount it
borrows by issuing some RUB2 trillion of OFZ, which will become the main
funding tool for the budget.

These can be bought by Russian banks that hold about 1% of GDP in cash.
The National Welfare Fund (NWF) will also be tapped to fund the deficit; it
currently holds about 9% of GDP in funds.

And as oil exports are anticipated to continue more or less unimpeded, Russia
is expected to continue to run a very substantial current account surplus in
2023 that will also provide funds.

Bruegel estimates that a RUB10 shift in the dollar exchange rate triggers
a 1.2% of GDP change in revenues from crude oil, petroleum products
and natural gas through its effect on extraction taxes and export duties.
Bruegel also found that the effect of a $10 per barrel move in the price of crude
oil and petroleum products amounts to roughly 0.8% of Russian GDP, and a
$10 per MWh of natural gas amounts to about 0.5% of GDP.

In 2023 the MinFin has several options to fund the budget.

72 Russia OUTLOOK 2022 www.intellinews.com