Page 52 - RusRPTDec18

current RUB 3tn to roughly RUB 2.5tn.
Russia started this year expecting a budget deficit of 1.3% of GDP, but with the unexpected strong performance of oil prices the situation with Russia’s public finances improved dramatically.
Oil prices averaged about $65 per barrel in the first quarter, against the budget assumption for this year of $40, and grew to an average of about $75 in the second quarter, topping $80 on occasion in the third quarter. However, this week a stand off between the US and Saudi Arabia shook markets and oil prices fell below $65 for the first time since March this year on November 13. Nevertheless, with sanctions back in place on Iran analysts speculate that $100 oil is possible soon.
The last time the federal budget was in a headline surplus was in 2011 when revenues exceeded expenditures by RUB442bn.
All oil revenues in excess of $40.8 per barrel are sterilized and sent to the National Welfare Fund (NWF), which accumulated RUB3.55 trillion as of November 1 and is expected to reach at least RUB4 trillion by the end of this year.
Russia’s Duma amended the 2019 budget law on November 12 to take into account the higher oil prices the government has been enjoying this year and added just under RUB2 trillion to the income it can spend as a result.
The assumption for the prices of oil was increased from the $40 the government has been using for the last several years to the average price for 2018, which is $69.6. At the same time the assumption for the exchange rate was increased to RUB61.7 to the dollar.
Both changes are important as under the so-called budget rule any tax revenues earned from oil exports in excess of the threshold aare siphoned off into the National Welfare Fund (NWF) and cannot be spent by the Duma. Likewise the exchange rate is important as budget assumes an oil price denominated in dollars but the revenues it receives from oil is denominated in rubles so any weakening of the exchange rate will increase the amount of rubles the government has to spend. These two changes will bring the government an additional RUB1.1 trillion ($16.2bn) and RUB319bn ($4.7bn) of spendable revenues respectively.
The original 2019 budget draft had assumed an average oil price of $61.4 and an exchange rate of RUB58.6 respectively.
The change to use the average price of oil for 2018 also represents a departure from the more prudent stance of using the average oil price over the last three years, which was the case when the budget rule mechanism was first introduced pre-2008 crisis. It leaves the budget more open to volatile on the commodity markets and than the ultra conservative $40 assumption Russia has been using until now.
The Ministry of Finance has been looking for ways to increase budget revenues and has exhausted most of its other options. The increased revenues are probably still insufficient as president Vladimir Putin’s May Decrees call for an additional RUB2 trillion of spending a year on infrastructure
52 RUSSIA Country Report December 2018 www.intellinews.com