Page 72 - bne magazine November 2021_20211104 uzbekistan risding

72 Opinion bne November 2021
Oil prices are surging and Russia Inc is back in profit, but the Kremlin is continuing to run an austerity budget. What gives? MACRO ADVISORY
Sanctions and oil fear force stability first in Russia
Chris Weafer of Macro-Advisory in Moscow
Several years ago, a young deputy minister started his description of the Russian economy by saying: “The good news about the economy is that it is stable.” After a brief pause, he added: “The bad news about the economy
is that it is stable”. He perfectly summarised what was
wrong with the economy over the previous two decades: the government endorsed a stability first policy and allowed the volatility in natural resource receipts to drive, or fund, the boom-and-bust cycles.
That approach appeared to be changing in the aftermath of the start of the sanctions regime and yet another oil price collapse (2014-15). The combination of these external hits forced the government into taking some long talked about, and even longer overdue, measures to protect the economy from external pressures – the Fiscal (or Budget) Rule being chief amongst them. It aimed to cut the breakeven price of oil in the federal budget from $113 per barrel (p/bbl) in 2013 to $45 p/bbl by 2022 or 2023; an ambition helped largely thanks to the ruble devaluation, although by no means exclusively.
The government was also forced into a long discussion about future growth drivers and what type of economy Russia
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should have by the end of this decade. From this discussion emerged the National Projects Program (NPP). A near $400bn spending plan, to be spread over thirteen separate economic and social categories, over a five year, later nine years, timeline. And thanks to the Fiscal Rule, the OPEC+ deal and conservative fiscal management, the country could afford to fund a large part of the NPP without reliance on private sector co-investment.
But today, because of the cabinet’s adopting the draft of the 2022-24 federal budget, the optimism that the government had turned 180 degrees to a looser fiscal stance, has been badly dented.
The draft budget is very conservative. It assumes a declining average oil price from $66mp/bbl this year to $55.7 p/bbl in 2024. The budget assumes a surplus in 2022 (1.1% of GDP) and 2023 (0.3% of GDP), as it will have this year (at least 1% of GDP), rather than a deficit to be funded out of the $191bn National Welfare Fund (NWF). This is the fund boosted by the high average oil price in recent years and which was intended as the source of funding for NPPs and other budget spending. The draft budget targets the fund to rise to 10% of GDP, from