The Federal budget in surplus in 2M22, amendments to come

RUSSIA ECONOMICS - In Brief 17 Mar 2022 by Alexander Kudrin

---

Minfin reported that in 2M22 the federal budget surplus exceeded R0.4 trln as revenues and expenditures reached R4.2 trln (16.8% of the annual plan) and R3.8 trln (16.0% pf the plan). The government collected R1.8 trln in oil-and-gas revenues and reg rest of R2.4 trln came from the non-oil-and-gas segments of the economy. The annual target for the oil-and-gas revenues was set at R9.5 trln and is likely to be met (assuming no major further deterioration in geopolitics) even if physical volumes of Russia’s energy exports contract. Rapidly accelerating inflation should offset a likely significant GDP contraction this year. Therefore, to run the budget as it is currently planned won’t be a problem (total revenues for the full year are planned at R25 trln, and expenditures should stay at R23.7 trln).Though the expenditure plan is likely to be amended as the government already hinted at the need to provide of some support for the economy. Therefore, the revised 2022 budget will look differently but at this stage, it is not clear how.What is now certain is that the fiscal rule is completely dead as the idea of building up reserves, having a non-zero risk of these reserves to be confiscated, and borrowing while running the budget with surplus one more time proved unsustainable. In 2M22, the government gross borrowing reached only 3.6% of the annual target. At the same time, interest payments should reach this year R1.4 trln, i.e.5.6% of total expenditures. Given Russia’s forthcoming decades of political, financial, economic, and cultural solitude, the entire concept of budgetary planning will change.Evgeny GavrilenkovAlexander Kudrin