Page 74 - RusRPTOct22

1H22, however, since 2H22, the situation changed as sanctions pressure on Russian energy exports increased. Concurrently, the ruble strengthening also reduced the domestic currency value of Oil & Gas revenues. A combination of these forces together with higher budget spending increased the breakeven oil price for 2022 to $100bbl (last seen in 2014).
In 2023, breakeven oil price will remain higher than budget rule price. The budget for next year is still under discussion, but according to preliminary estimates, spending may remain within RUB26.3 trillion.
Despite some fiscal tightening in 2023, budget positions seem under significant risk of the economy losing >1mmbpd of oil production – it might push the breakeven oil price up to $108/bbl, if the authorities do not increase revenues or contribute to the ruble weakening.
Both factors may reduce the breakeven price, but unlikely to the levels of new budget rule parametres with oil price targeted at $60/bbl and oil production – at 9.5mmbpd. Hence, as significant fiscal tightening does not seem possible in 2023, the most important part of the drafted budget rule is seen in its interaction with the exchange rate.
BCS GM does not expect significant purchases of the foreign currency in 2023, “but if they amount to at least $1bn/month, it will contribute to 5% weakening of the ruble. Although it may increase the ruble denominated value of oil revenues, we still believe that a search of non-oil taxes will be on the authorities’ agenda.”
Russia’s budget surplus shrank sharply in August, as revenues wilted under the pressure of lower energy production and sanctions.
What the Ministry of Finance said:
· According to preliminary data from the Ministry of Finance, the budget in January-August was executed with a surplus of RUB137bn. But that was down from January-July, the Ministry of Finance estimated the surplus at RUB482bn. That means in August there was a month on month budget deficit of RUB345bn, due to sharp fall in energy revenues.
· Russia has been running a budget surplus all year, but the size has fallen from approximately 1% of GDP just before the war with Ukraine started in February to 0.5% as of end of July and will have fallen even further in August. The budget is expected to go into deficit in the next two months.
· According to the results of the first six months of the year, the surplus, according to the Ministry of Finance, amounted to RUB1.374 trillion. This means that in July the deficit was RUB892bn. June was also in short supply - RUB121bn. Data for
74 RUSSIA Country Report October 2022 www.intellinews.com