Page 16 - RusRPTApr21

However, some of the money in the fund has been tasked to guarantee some spending.
Moreover, Ministry of Finance has been cautious with using the money in the fund for its primary purpose of covering federal budget deficits.
Russia ended 2020 with a 3.8% fo GDP deficit – less than expected – and is forecast to end this year with a 4.4% deficit. However, given the strong rise in commodity prices, especially oil, in the first months of this year that prediction is already looking far too pessimistic. Russia’s consolidated budget had a RUB644.899bn deficit in January–February. Budget revenue stood at RUB2.755 trillion and spending at RUB3.4 trillion.
Instead of simply tapping the NWF to cover the short fall, the MinFin has chosen to take as little as it can from the fund and increase Russia’s debt instead. The issue of OFZ doubled last year to around RUB4 trillion and will remain elevated this year, although the ministry recently suggested that it would cut the borrowing targets this year on the back of a better than expected bounce bank and new sanctions fears.
Channelling more money into infrastructure investment, supervised by VEB.RF (formerly Vnesheconombank), is part of the key 12 national projects that are designed to “transform” the economy and return prosperity. The programme has got off to a slow start but received an overhaul last month in an effort to accelerate the pace of action.
As part of this effort to revitalise the programme Siluanov said that authorities are currently revising the rules for investing. The new rules could limit NWF’s share in any project to no more than 25% or no more than 40% in the total amount of borrowed funds.
According to Siluanov, the government could determine its priorities around job creation and the economy via infrastructure spending (e.g. RUB1 trillion on the Moscow-St. Petersburg high-speed railway). Siluanov said that spending from the NWF could amount to RUB1 trillion over the next three years.
Last week, Russian President Vladimir Putin asked the government to provide suggestions within a month for investment venues for NWF’s extra energy revenue. Although the current projections call for the NWF’s hard currency part to be below 7% in the next three years, this part of the fund exceeded 7.5% of GDP in February, as oil prices remain far above this year’s forecast ($59.6/bbl YtD vs. the expected rate of $45.3/bbl), and they could provide an additional RUB180-200bn/month in budget revenue, according to Putin.
“As we expected, the current mix of oil prices and the RUB/$rate could bring in RUB2.4trillion in additional oil and gas revenue in 2021 and RUB1.7-2trillion in 2022-23, and the current mix could urge the government to support economic growth in 2021-23. Although infrastructure construction could raise Russia’s economic potential in the mid-term, a sufficient stimulus to households and the most affected businesses is still needed to sustain the economic recovery and mitigate the long-term effects of COVID-19. Without addressing these issues, the infrastructure stimulus would have less of an impact on Russia’s economic recovery. Besides, ruble spending from the sovereign fund could ease the pressure on the currency from the execution of the fiscal rule and help to strengthen the RUB/$rate,” Sova Capital said in a note.
16 RUSSIA Country Report April 2021 www.intellinews.com