Page 55 - RUSRptOct18

Russia's oil and gas sectors were a key source of tax revenues in 2017,
according to data from the Federal Tax Service (FNS).
The two extractive sectors (that also included the mining industries) provided some 29.2% of all revenue to Russia's consolidated federal budget, which includes both federal and regional budgets. That figure is up over 2016, when it reached 26.5%.
Meanwhile, increasing Mineral Extraction Tax (NDPI) returns drove some 40% of revenue growth in 2017 over 2016, or RUB2.8 trillion ($50bn).
The key dynamic at play over the last year was rising oil prices, which increased an average 25% y/y, according to Dmitri Kulikov at the domestic rating agency AKRA.
Tax revenue increases were also helped by a temporary limit on loss carryforwards, set to expire in 2020. The trend goes beyond tax revenue, with carry sectors driving industrial output as well, adds Kulikov.
“ Officials have talked a big game on structural readjustment away from hydrocarbons. Indeed, hydrocarbon revenue as a percentage of the total has fallen in recent years. But that's not due to changes in the economy so much as energy prices simply being lower: extractive sectors contributed less to the budget because they made less money,” Bear Market Brief said in a note.
6.1.2 Budget dynamics - govt funding plans
The yield of OFZ have risen on the back of sanction fears and by the close of trading on September 6 reached 9.1% per annum for 10-year securities — the highest since April 2016.
Russia’s finance ministry plans to borrow RUB1.5 trillion ($22.8bn) next year to fund the budget and the government’s expanding investment programme., according to the draft budget for 2019 that was released on September 24. But fleeing foreign investors mean estimates of the money available on the market fall short by RUB500bn. The Finance Ministry plans to place a net RUB1.704 trillion on the OFZ market next year. The borrowing plan appears to be aimed at covering the redemption of maturing Eurobonds and FX loans totalling $3.2bn (RUB204bn). “Even if the ministry manages to replace its maturing FX obligations with new issuance, the RUB1.5 trillion target looks quite aggressive to us at first glance,” Nikolay Minko of Sberbank CIB said in a note. Russia’s OFZ market was hot with international investors overweight in 2017 but with the threat of new US sanctions looming they have sold off some RUB500bn ($7.8bn) of bonds since April bring the foreigners share down to 27% of the total bonds outstanding as of the end of August. As foreign investors have been playing an important role in the ability of the Ministry of Finance to raise money, the cooling of enthusiasm could create problems for the ministry’s borrowing plans: as a result of the sell off the yields on OFZ have already risen 200bp in just a few months to 9% as of the end of summer. Because of the heightened political tensions that has feed through into ruble volatility the Ministry of Finance cancelled all its bond auctions in September – the first month with no OFZ bond sales since the 2014 currency crisis. “Assuming that non-residents will finish rebalancing their portfolios to adjust to the geopolitical situation by year end, local investors will remain the
55 RUSSIA Country Report October 2018 www.intellinews.com