Page 58 - RusRPTAug23

RUB3.1 trillion in April.
Despite the record large deficits Siluanov stuck to his full year target of RUB2.9 trillion, or 2% of GDP, although since March has suggested there is a chance that the deficit may grow to 2.5% of GDP.
The finance minister has remained confident that his modest target is achievable. Siluanov said one of the reasons for the large deficit in January is that a lot of expenditure that normally comes at the end of the year had been frontloaded to January to smooth out payments. Typically, just over 20% of all government expenditure comes in December alone – but not this year as a result of the frontloading.
He also said various tax and reporting changes had affected the result and pushed the deficit number up artificially. Both these things were one-off changes that would not be repeated.
Nevertheless, the 46% fall in oil and gas revenues was real and accounted for at least half of the shortfall. The fall in income was due to the new oil and oil products sanctions that came into effect on December 5 and February 5.
But Siluanov said that the fall in oil revenues would recover as the year wore on. The sanctions caused a disruption in the delivery of Russian oil to “friendly” markets and once the sanctions were imposed new routes and customers needed to be found – a process that takes several months.
The Finance Minister’s predictions appear to be playing out after the monthly deficit began to recover and put in a very small surplus in May. That surplus has grown from RUB13bn to RUB815bn in June as oil and gas, as well as other revenues, begin to climb again.
In general, the good budget revenue performance in June has shaved just under RUB1 trillion off the deficit, reducing it from an annual cumulative peak of RUB3.4 trillion in May to RUB2.6 trillion in June – inside the 2% of GDP target for the whole year.
The pick-up in revenues has been helped by rising price of oil and the narrowing of the discount between the Russian Urals blend and the benchmark Brent blend. A decision by OPEC last month to voluntarily cut production has lifted the price for a barrel of Brent to around $85 but more importantly the discount on a barrel of Urals has fallen from a high of around $35 on the price of Brent to around $10 now.
After falling as low as $35 per barrel in the depths of the sanctions onslaught in the first quarter of last year, the price of Urals has recovered in recent months to break above the oil price cap sanctions level of $60 in July, but the Western allies have been reluctant to strictly enforce the new rules, afraid of causing a
58 RUSSIA Country Report August 2023 www.intellinews.com