Page 46 - RusRPTOct19

Expenditures will increase by RUB1.2 trillion next year to RUB19.5 trillion
($305bn), roughly 17.3% GDP. From there, they will grow to RUB21.8 trillion ($341bn) in 2022, but decrease as a share of GDP to 16.9%.
Revenues will gradually decrease starting next year, from 18.5% GDP in 2019 to 17.2% in 2022. This reduction stems from a projected decline in oil prices and from losses due to tax benefits to the oil and gas sector. In 2019 alone, the budget will lose RUB1.6 trillion ($25bn) due to these benefits.
Russia’s large budget surplus has become a sensitive topic lately. As the economy barely grows, it doesn’t look great for the government to be sitting on a pile of unused cash. This new budget clearly intends to stimulate GDP growth, albeit in the conservative Russian sense of surplus-only spending. Yet experts are doubtful it will make much difference. The increase in spending is simply not significant enough to meaningfully boost GDP.
Notably, the government continues to base the federal budget on the so- called "budget rule" with a low threshold cut-off oil price for public spending ($42.4 per barrel for 2020 versus an estimated average annual price of $57 per barrel) that allows to run a surplus budget and to continue increasing the National welfare Fund (NWF) from the residual oil and gas revenues.
The NWF is expected to grow in 2020 by RUB2.3 trillion after a planned increase of RUB2.8 trillion in 2019. The government seems to take a middle ground in its debate with the Central Bank of Russia (CBR) on spending the surplus of NWF above the 7% of GDP level.
BCS Global Markets sees the budget draft as "continuing a prudent approach to spending, along with the proposed extension of a freeze on tapping into the sovereign fund, means that growth will remain subdued in 2020 – a downgrade in 2020 official growth estimate is no surprise.
The projection on the future oil prices is also downgraded (down from an estimated $62.2 per barrel in 2019 to $55 in 2022) and tax breaks to the oil and gas industry, see public revenues will decline as from 17.6% of GDP in 2020 to 17.2% in 2022.
National projects will be the largest spending item in the budget: in 2020- 2022, gross federal spending will amount to about RUB62 trillion, of which 15% (or over RUB9 trillion) will go towards the implementation of national projects.
BCS GM reminds that the consensus expectation links the acceleration in Russia’s growth dynamic to an active start of spending on National Projects, perhaps already in 4Q19 or in 2020. Federal spending is drafted to grow next year from 16.1% of GDP in 2019 to 17.3%, but will start to decline in 2021-22.
Nevertheless, "judging from the latest version of the official forecast, approved yesterday, the government now sees growth picking up only from 2021. Instead, key official estimates for 2020 were downgraded: GDP growth to 1.7% y/y from 2% before, investment growth to 5% y/y from 7% and retail sales to 0.6% y/y from 2.1%," the analysts warn.
46 RUSSIA Country Report October 2019 ww.intellinews.com