Page 35 - bneMag Oct23

bne October 2023 Cover story I 35
Deficit of 2% or less and no borrowing
The federal budget deficit in 2023
will not exceed 2% of GDP, which is in line with planned indicators and is a remarkable achievement if it comes to pass, Siluanov told reporters about this during the Moscow Financial Forum.
According to the Finance Ministry, the Russian federal budget deficit in 2024 will amount to RUB1.595 trillion ($16.4bn), or 0.9% of GDP, which is notably down from the RUB2.9 trillion deficit pencilled in for this year.
In 2025 the deficit will fall further to RUB830bn ($8.5bn), or 0.4% of GDP,
in 2026 to RUB1.536 trillion ($15.8bn), or 0.8% GDP. Prior to the war Russia has run a budget surplus every year for almost two decades.
In another surprise, Siluanov said the government would not need to borrow
to fund the budget this year. MinFin
has some RUB6.8 trillion available in
the National Welfare Fund (NWF), the sovereign rainy day fund tasked with covering budget short falls – more than twice what is needed to cover this year’s anticipated shortfall – but has been reluctant to tap the fund, prefer to cover at least part of the hole by tapping the some RUB17 billion of liquidity in the banking by selling Russian Finance Ministry’s OFZ treasury bills to raise funds.
Siluanov says this year’s target on oil and gas revenues will be surpassed,
as oil prices rise towards $100 a barrel and the oil sanctions are increasingly acknowledged to have failed. A recent report by Global Witness found at some 70% of Russia’s traded oil is being sold at market prices outside of the sanctions regime – largely to buyers in Asia. That means budget expenditures can largely be funded without borrowings on the market, Siluanov told reporters at the Moscow Financial Forum. Siluanov’s prediction that oil and gas revenues will recover in the second part of this year, appear to have come true.
"This year we expect solid oil and gas revenues, with the target on oil and gas revenues to be surpassed. In this respect I think it is absolutely economically
feasible that expenditures will be financed using oil and gas revenues, without using borrowings on the market," he said. "We have decided to limit borrowings this year, to cut the program by around RUB1 trillion," he said. Typically, MinFin borrows around RUB3.5 trillion from the market by selling OFZs.
Oil and gas revenues of the Russian federal budget may increase in 2024 by almost 30% compared to 2023 - from RUB8.86 trillion ($91.6bn) to RUB11.5 trillion ($118.9bn), according to the Main Directions of Budget, Tax, and Customs Tariff Policy for 2024 and the planning period of 2025 and 2026, Tass reported on September 29.
In 2025, the ministry expects a further increase in oil and gas revenues to RUB11.8 trillion ($121.97bn), and in 2026 a decline to RUB11.4 trillion ($117.8bn).
The document also stated that, taking into consideration exchange rate dynamics and tax legislation revisions, the percentage of oil and gas income in
apparent upward pressure on prices, she was also sticking to her long-standing inflation target of 4% she told the Moscow Financial Forum, despite calls to increase it.
Ironically, just before a mini-currency crisis in August where the ruble weakened to RUB100 to the dollar, Nabiullina announced that Russia’s economy was back on a stable economic trajectory and the CBR had even floated the idea for the first time of reducing the CBR’s inflation target to 3%. That talk was immediately abandoned after Nabiullina was force to put through an emergency 350bp rate hike on August 15 to halt the ruble’s collapse.
“I can't help but react to attempts
to change the inflation target. The worst thing is to change the inflation target: then the benchmarks disappear altogether – neither the exchange rate nor inflation,” she said.
The chairwoman also said that the ruble exchange rate would have been weaker now if the regulator had kept the key
“The focus of economic policy is shifting from an anti-crisis agenda to the promotion of national development goals”
2024 is estimated to be 6.4% of total GDP, up from 5.3% in 2023.
At the same time, the Ministry of Finance anticipates that by 2026, the share of oil and gas earnings in GDP will fall to 5.6% due to price stabilization and a rise in the share of oil output from preferential tax treatment fields.
Inflation target to remain 4%
With budget revenues and the deficit sorted, the main bugbear to the economy remains inflation, which will be hard to control and will cause pain as prices will inevitably rise.
But chairwoman of the Central Bank of Russia Elvira Nabiullina is as competent as Siluanov and equally adamant that she would hit her targets. Despite the already
rate at 7.5–8.5% instead of hiking it to its current 13%.
The ruble remains weak and there has been talk to the CBR returning some of the currency controls, but the ever super conservative Nabiullina is moving very cautiously. Russian authorities need
to “act very carefully” in the currency regulation, “otherwise business will start circumventing restrictions,” she said.
“We all talk about how well we did last year, but it was our business that did well, it adapted. And we should be very careful saying “the situation has changed, let's build barriers”. what will happen to the business that built these chains? How will it handle this? It will start to circumvent the restrictions, we had it in the late 1990s - early 2000s,” she said.
www.bne.eu