Page 72 - RusRPTApr21

“The government is attempting to implement a quite tight borrowing program of RUB3.7 trillion gross this year after borrowing RUB 5.2 trillion gross in 2020,” Sova Capital said. “We suspect that the government’s plans for 2021 are even more challenging than those of 2020. Last year, fiscal authorities were in crisis mode, issuing RUB 3.1 trillion in OFZ floaters (linked to RUONIA), with the largest banks being the main borrowers. A similar step was taken at the end of 2014. Rising interest rates in Russia and globally could weigh heavily on interest rate costs for RUONIA floaters. Simultaneously, thinner liquidity in the banking sector might limit the potential for additional massive sales.” The budget is based on a rather conservative oil price assumption and RUB/$rate ($45.3/bbl and RUB72.4, respectively), and the recent rally in oil prices has created significant tailwinds for the budget’s execution.
“The government is attempting to implement a quite tight borrowing program of RUB3.7 trillion gross this year after borrowing RUB 5.2 trillion gross in 2020,” Sova Capital said. “We suspect that the government’s plans for 2021 are even more challenging than those of 2020. Last year, fiscal authorities were in crisis mode, issuing RUB 3.1 trillion in OFZ floaters (linked to RUONIA), with the largest banks being the main borrowers. A similar step was taken at the end of 2014. Rising interest rates in Russia and globally could weigh heavily on interest rate costs for RUONIA floaters. Simultaneously, thinner liquidity in the banking sector might limit the potential for additional massive sales.” Sova Capital ran a sensitivity analysis of the federal budget and found that with the current oil prices and RUB/$rate, the budget could receive an additional 2.3% of GDP, which would allow for additional spending on COVID-19 relief if the fiscal rule were suspended or additional funds were directed from the NWF towards infrastructure projects. “We think that social and business support packages could sustain the recovery momentum this year,” Sova said in a note.
Against this government spending surged in January as the government continues to tackle the fall out from the coronacrisis. According to preliminary estimates, January's federal budget was fulfilled with a RUB185bn deficit vs. Sberbank’s expectations of a small surplus of RUB50-100bn.
Budget revenues remained strong in January, in line with expectations, with non-fuel revenues up 7% year-on-year, including a 39% y/y increase in local VAT, partially due to the scheduled tightening in tax collection regulations.
Normally, January is a month of restrained spending, accounting for 4-6% of the annual spending, but this year budget expenditures were also higher than expected, posting a 3% y/y increase from a high base (January 2020 spending was up 45% y/y, FY20 increase was 25% y/y). This increase challenges the current official plan to make a 6% y/y cut in nominal federal spending this year.
Revenues are expected to climb to RUB18.8 trillion in 2021, up from RUB17.9 trillion in 2020, and then rise to RUB20.6 trillion in 2022 and RUBR22.3 trillion in 2023.
72 RUSSIA Country Report April 2021 www.intellinews.com