Russian macro: Budget execution and balance of payments suggest the Russian economy is adjusting
The Finance Ministry reported that the federal budget revenue flow was strong last month as non-oil-and-gas revenues soared by over 76% y-o-y and reached R1.836 trln. As a result, the budget posted a small surplus in April even though expenditures exceeded R2.26 trln, which is very high, given that 1Q20 federal budget expenditures totaled R4.62 trln. Revenue flow in April was very strong due to the so-called “other non-tax income”. In this case this transaction was associated with the sale of the CBR’s controlling stake in Sberbank to the Ministry of Finance. This transaction assumes Minfin’s spending some cash from the National Wealth Fund and transferring it to the CBR in return for Sberbank equity. The CBR receives profit from the deal, and according to Russian regulations, the bulk of this profit is due to be transferred to the federal budget, so the "profit" received by the CBR was almost immediately transferred back to the government. Such a transaction looked as accounting of Minfin’s spending of the reserves as revenues, while normally spending of reserves is treated as financing the budget deficit.
The 4M20 budget execution numbers showed that the expected budget deficit remains manageable and is expected to stay at R4.6 trln (around 4% of GDP). However, if the budget accounting is adjusted for the “Sberbank sale” transaction (i. e., revenues are down and the deficit is up as mentioned above) then the deficit will formally exceed 5% of GDP.
- The government already spent 35% of the annual target in 4M20, which has not yet been officially amended as the debate on additional spending and other measures to support the economy, such as state guarantees, is still pending. In 4M20 federal budget posted a surplus of around R0.12 trln.
- Despite the low oil price, Russia’s balance of payments looked strong: according to the CBR’s preliminary estimate, the current account posted a surplus in 4M20 and in April. This surplus reached $23.5 bln in 4M20, implying around a $1.8 bln surplus in April alone. As the oil price fell (the Urals blend price averaged $22.5/bbl that month) imports also should have fallen significantly. This goes well in line with the aforementioned budget execution statistics, which posted a deep contraction of VAT on imported goods. Based on the budgetary statistics it could be estimated that imports contracted by more than 25% in April.
- We currently expect a trade surplus of at least $65 bln this year as a whole, which may be almost fully offset by the traditionally strongly negative income balance (including primary and secondary income) and negative services balance. Note that in the early year these two deficits are seasonally relatively small and are set to widen over the rest of the year.
- Hence, even in case of a very negative income balance the current account is expected to retain a small surplus in 2020. However, it may turn negative in some months (for instance, when foreign debt servicing peaks). If the oil price continues to rise, the surplus will widen.
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