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· The revenue trend has been deteriorating since 1Q20, with fuel revenues down on the decline in oil prices as well as Russia's production cuts enforced since May as per OPEC+ commitments. Non-oil revenue growth net of one-off proceeds has also been under pressure since 1Q20, turning negative in 5M20. VAT, import duties, profit tax are the key pressure points, which are likely to persist in the coming months amid declining consumption, imports, and corporate profits.
· As a result of a gradual acceleration in spending since 1Q20, the overall federal expenditure growth is 26% y/y in 5M20, corresponding to a RUB1.7 trillion y/y increase. As can be seen from Figure 3, over half of that increase (around 55%) is comprised of social payments (unemployment benefits and social support to low-income families with children), healthcare spending, and direct transfers to regional budgets – reflecting support measures in response to the Covid-19 pandemic and lockdown.
The Russian government approved the Ministry of Finance’s proposal for Russia’s 2021-23 budget on September 16, which has been amended to adjust for the effects of coronavirus.
The document foresees a 4.4% GDP deficit in 2021, 2.4% in 2022, and 1% thereafter. Here’s how Russia plans to achieve these figures.
Spending up, revenues down
Entire sectors of the economy were shut down during the crisis, the number of unemployed people increased significantly, and the population’s incomes fell; the government (albeit not immediately) began spending significant amounts of money on supporting the economy and the population.
The recovery plan suggests RUB5 trillion (about $66.5mn) in spending; of, which RUB1.7–1.8 trillion ($22.6–$24bn) will be paid from the federal budget in 2020.
The OPEC++ in April deal resulted in a record decline in oil production among the majority of oil-producing countries. Russia, along with Saudi Arabia, has been leading the way in terms of production cuts.
Production increased slightly in August, but Russia was still producing 12.8% less oil than the year before. When the price of oil exceeded $42 per barrel in August, the Russian budget made “windfall gains” (around RUB25bn or $333mn by today’s conversation rates). However, it suffered three times the losses (RUB75bn or $998mn) due to the decline in oil production.
For comparison, Russia’s oil and gas revenues in August 2020 were RUB220bn ($2.93bn) less than in August 2019, when the average oil price was a little under $60 per barrel and a significant amount of money was being put into the National Wealth Fund.
79 RUSSIA Country Report October 2020 www.intellinews.com
