Page 8 - RusRPTApr20

despite only a small increase in the tax burden.
Spending is set to increase over the next three years, according to the new new budget, thanks to the implementation of the 12 national projects. However, this spending hike will not be that dramatic as much of the spending on the national projects will be financed by reallocating existing spending on other areas and supported by private sector spending. All-in-all economists estimate the share of spending will rise to around 17% of GDP in the coming years. Already much of the spending on the projects in the first half of this year will be financed by funds allocated last year, which were not spent on time.
And even if low oil prices persist then the Ministry of Finance says it has enough in the National Welfare Fund (NWF) to cover a shortfall for up to 10 years.
The NWF contained $150bn as of the start of March, or circa 9% of GDP, and remains flat at a level of $42 for a barrel of oil. If oil falls below these prices the NWF can be used to fund the difference and if the size of the fund falls below 5% of GDP then spending from the fund is capped at 1% of GDP, or about RUB1 trillion per year, imposing an automatic austerity response if the fund begins to get too small.
In general, balancing the continues to be the priority of budget policy in the next three years, according to experts. At the same time, the question of how to replace the shortfall in oil and gas revenues in the future remains unanswered, according to Ilya Sokolov, an economist writing in the Economic Times.
NWF and non-oil deficit
The problem with the current budget plan is that the assumptions for both the oil prices and ruble exchange rate already look far too optimistic.
Oil prices fell from around $55 in February to $32 on March 10, although they had recovered somewhat to $37 for Brent at the time of writing. Analysts and the government are still assuming an average price around $55 for this year.
The value of the ruble also collapsed from RUB68 to RUB75 and is very likely to remain weak for at least the rest of the first half of this year.
Let’s dig into the numbers and see in detail what the budget will look like going forward. The key to the government’s plans to keep its boat afloat is the $150bn its has in reserve in the National Welfare Fund.
In 2019 the government is expecting to collect a total of RUB20,174.9bn ($272.6bn) as tax revenues of which RUB11,933.5bn ($161.3bn) is from oil, or 41% of the total. That is also equivalent to 7.6% of GDP, but this share is supposed to shrink steadily over the following years to 6% of GDP by 2022.
8 RUSSIA Country Report April 2020 www.intellinews.com