Page 79 - RusRPTApr21

6.1.2 Budget dynamics - specific issues...
Russia’s Minister of Finance Anton Siluanov said that the Russian government is planning to cut its borrowing for 2021, Bloomberg reported yesterday, 9 March. Mr. Siluanov noted that deficit funding could come from non-energy revenue collected but not utilized in 2020. Although he did not specify the size of the planned cuts, Mr. Siluanov noted that the funds could finance extra spending that goes beyond the structural primary deficit of 0.5% of GDP (1.6% of GDP in 2021). According to Mr. Siluanov, the reduced borrowings “will allow the debt market to react calmly to possible sanctions risks”. As a result, public spending might not exceed 20% of GDP over the next three years.
Although MinFin managed to fulfill its RUB5.2trillion borrowing needs in 2020 via a “crisis” scheme involving RUONIA floaters (OFZ-PK), such an opportunity could be limited in 2021 due to rising global and local interest rates, which could inflate budget debt service costs.
The statements appear to be in line with our expectations of lower borrowings this year, which stand at RUB3.7trillion gross. Siluanov's comments imply cutting borrowing by RUB600bn (unallocated expenditures from 2020) as well as cuts to the Russian government’s reserves (c. RUB400bn). According to our revisited model sensitivities, cutting the borrowing program by RUB600bn could ease pressures on 5Y and 10Y OFZ yields by 15bps, while reducing the OFZ supply by 1% of GDP could ease pressures by 30bps.
6.1.3 Budget dynamics - govt funding plans
The Russian government discussing a proposal to cut borrowing this year by RUB0.5-1 trillion at the beginning of March, possibly reducing its total planned borrowing from RUB3.7trillion to RUB3.2trillion or even RUB2.7trillion gross. According to The Bell, authorities are possibly concerned about implementing the borrowing program following a second round of US sanctions under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW) restrictions. While we believe that cuts to the borrowing program could be instrumental in alleviating some of the upward pressure on interest rates, we still think it is necessary to spend more on social and business support to sustain the recovery in consumer income.
6.1.4 Budget dynamics - National Projects
The government has still not published the updated the 12 national projects, nor the National Goals Strategy that supersedes it.
The latest announcement was a decree issued February 3, allocating responsibility for a Strategy of Socio-economic Development to 2030. This will
79 RUSSIA Country Report April 2021 www.intellinews.com