Page 12 - bne_Magazine_March_2018

12 I Companies & Markets bne March 2018
falling from over $800 a month in the boom years to around $400 in the bowl of the crisis but have recovered to just under $700 a month now.
Breaking the oil addiction
After several years of losing money, Russia’s government went into profit again in January running a RUB190bn ($3.4bn), or 2.8% GDP surplus. The crisis of the last years forced Russia to go cold turkey and has finally broken its addiction to oil.
In the boom years the Russian budget needed oil prices to be more than $115 per barrel to make a profit, but since then cost cutting, a crack down on corruption and an unsung revolutionary reform to the tax system – there has been
“Preliminary figures from Rosstat show that Russia’s economy turned the corner in 2017”
massive investment into a state-of-the-art tax service IT system that has increased revenues by 40% – means as bne IntelliNews has reported Russia Inc went into the black in 2017 as the break even price has fallen to $53 a barrel, according to Oleg Kouzmin, chief economist for Russia at Renaissance Capital. The average price for oil in 2017 was $55.44 and so far this year the average price in January was up to $66.23.
The surplus was helped by higher oil prices, but the crisis has lead to a huge shake up of the tax system, which is working more efficiently and expanded its sources of revenues.
Consolidated budget revenues (federal, regional and municipal, plus social funds) increased by over 13% y/y. Higher oil prices helped increase revenues via oil & gas tax income (up 23%) whose share rose to close to a fifth of total budget revenues, but this is still way down on the 50% it used to be.
“The tax system reforms have lead to other budget revenues to rise by 10%, which is rapid even if the data was adjusted
Russia GDP (y/y)
for inflation. Revenues from corporate profit taxes and goods excise taxes rose especially fast,” Bank of Finland Institute for Economies in Transition (BOFIT) says.
Budget spending also grew but at a more modest pace, up
by 6% in January y/y. Most of this went into social security spending, which rose to over 10% and the share increased to over 36% of total budget spending. But serious savings were made by cutting back on military spending, which has skewed the budget for most of the last few years towards a deficit.
However, the biggest change to the budget has been the re-introduction of the so-called budget rule since the start of January. This dictates that any revenue earned from oil exports when the price of oil is over $40 must be squirreled away in the sovereign reserve fund. The practical impact of this rule is the link between the ruble exchange rate and oil prices gets broken as oil can’t rise above $40 as far as the currency is concerned.
It also means Russia will start accumulating gross international reserves (GIR) again: reserves were already up to $450bn in January from a April 2015 low of $356bn. However, as far as the Ministry of Finance is concerned the real benefit is the budget rule will put a floor under the wild swings the Russian economy has always been prone to; Russian Finance Minister Anton Siluanov says he wants to build a “second Norway.”
“We have got stability now,” Siluanov said at during the Gaidar forum in January. “But we have to go beyond that. The growth and the fall of the deficit is welcome but what it brings is not just stability, but predictability. That is the point of the budget rule; it's not there to accumulate reserves. It's there to increase the predictability of the economy for business and for investors.”
Russian banks back in business
Russia’s banking sector is recovering from two nightmare years in 2015 and 2016 and 2017 saw the sector’s aggregate income up y/y even counting in the collapse of three of the country’s biggest commercial banks (Financial Corporation Otkritie, Binbank (aka B&N bank) and Promsvyazbank) last autumn.
Russia breakeven Urals oil price for Russian budget
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