Page 14 - RusRPTFeb23

In January alone the oil and gas budget shortfall is forecast to come in at RUB54.5bn, hence yuan will be sold to cover this hole. Likewise, the price of Urals that prevailed in December of $50, with a decrease in production to 9mn barrels per day, led to oil and gas revenues of RUB6 trillion. According to the new rule RUB2 trillion worth of currency would have had to be sold from the reserves.
The use of non-sanctioned yuan is part of a general yuanization of the Russian economy that has been cut off from being able to use the dollar by the SWIFT sanctions that were imposed only days after Russia’s invasion of Ukraine last February.
The old budget rule was suspended after the war broke out, giving the government access to all revenues earned from raw material exports. The previous rule pegged oil and gas revenues to an index-linked threshold price for Urals oil, The Bell reports.
However, since the start of December both the price of Urals and the oil production volumes have become extremely unpredictable and so less suitable as a benchmark than the relatively predictable oil price and more or less stable oil production levels previously.
With an expensive war to fund, the Kremlin has become more focused on the actual revenues it earns from exports, rather than setting an oil price benchmark as a proxy for these earnings.
Another big difference in the new regime is restrictions on what money in the NWF can be spent on have been removed. The new rules also means the basic budget revenues forecasts have been decoupled from the budget rule; previously a key metric in the federal budget has been the forecast for the price of oil that then determines the expected ruble revenues in the coming year. Now that the oil and gas revenues themselves are the object of the rule, changes in the forecast of oil prices make no difference. This makes it easier to plan for patching holes in an already deficit budget, The Bell reports.
Experts have mixed reactions to the new budget rule. According to Sofia Donets, an economist at Renaissance Capital for Russia and the CIS, "nothing and everything changed at the same time,” as cited by The Bell.
On the one hand, symmetry has been preserved, when currency can be both sold and bought, depending on the revenues now, as opposed to the oil price before.
On the other hand, NWF spending will now appear in the budget that is not mirrored in any way in the foreign exchange market. According to Renaissance Capital, at the current level of production, RUB8 trillion roughly corresponds to oil at $55 per barrel. If production declines, as forecast by the Finance Ministry, the price will be higher in the region of $60 per barrel.
14 RUSSIA Country Report February 2023 www.intellinews.com