As Duma elections approach expenditures grow well above the plan, but the federal budget remains in surplus

RUSSIA ECONOMICS - In Brief 12 Sep 2021 by Alexander Kudrin

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The Finance Ministry reported that in 8M201 the federal budget was in surplus above R0.9 tln. In August alone expenditures exceeded revenues by a small margin (R0.1 trln) mostly since the government started allocating one-off payments to servicemen and military (followed in September by similar one-off “election bonuses to pensioners. The total amount of such transfers was estimated at R0.5 trln. In October wages of some categories of public employees will be also raised. Such additional spending contributes to higher inflationary pressure (estimated 0.5-0.6% of extra inflation in August and September). However, this inflationary effect is likely to be short-lived. Inflation will exceed 7% in September but will start coming down in 4Q21.Meanwhile, the expected disinflation may be rather slow as it gets increasingly likely that the government will amend the budget and significantly increase 2021 spending to be allocated in 4Q21.So far, the officially approved budget assumes R21.5 trln expenditures. In 8M21, the government spent around R14.8 trln (68.8% of the target), which is well ahead of the initial plan (assuming even allocation of spending by months). Planned 2021 federal budget revenues were supposed to reach nearly R18.8 trln. In 8M21, they already reached R15.7 trln (83.6% of the annual target) and are likely to exceed the plan by around R5.0 trln and possibly even above that, as high inflation helps collect more non-oil-and-gas taxes.At this stage, it is unclear by how much the government may increase its federal expenditures in 2021 overall, but allocating additional R2.0-2.5 cannot be ruled out. If so, the 2021 budget will still be either balanced or in a sma...