Federal budget surplus soars amid high price of oil and rising inflation

RUSSIA ECONOMICS - In Brief 12 Oct 2021 by Alexander Kudrin

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The federal budget surplus reached R0.367 trln and R1.444 trln in September and 9M21. The government collected 95.5% of the formally approved 2021 budget plan already in 9M21. Oil-and-gas tax collection during this period exceeded the annual plan by 3.3%, while high inflation helped collect 91.9% of the non-oil-and-gas revenue target. The government initially planned to collect nearly R18.8 trln in total revenues this year. In 9M21, total revenues exceeded R17.9 trln. By year-end, the figure could exceed R24.4 trln given that inflation and the oil price remain high and well above all expectations.Some time ago, the government also hinted that it would amend the 2021 expenditures to around R24.0 trln, which is well above the initial spending plan (R21.5 trln). If this happens, then in 4Q21, spending should reach R7.5 trln as in 9M21 the Ministry of Finance spent around R16.5 trln. Massive budgetary financing in the remaining part of the year is going to keep inflation high. Inflation y-o-y may even accelerate further from 7.4% recorded in September in this case.Recently the government submitted the 2022-2024 rolling budget to the Duma. Budgetary hearings are to start shortly after the new Duma gets settled following the September 19 elections. Given that revenue collection exceeds most optimistic expectations, one cannot rule out that the submitted draft 2022-2024 budget can be modified – an issue that deserves a separate discussion.Interestingly, despite a massive budget surplus, the government continued to borrow on the domestic market in compliance with the initial borrowing plan. It borrowed in net terms over R1.7 trln in 9M21. Borrowing money at a high cost well ov...