​The Federal budget surplus rises in March

RUSSIA ECONOMICS - In Brief 12 Apr 2022 by Alexander Kudrin

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The Ministry of Finance reported that the federal budget surplus reached R614bn and R1.151trln in March and 1Q22. The revenue collection was strong both on the side of oil-and-gas and the non-oil-and-gas taxes. In 1Q22, the government collected 28.7% of total targeted for 2022 revenues (31.2% of the planned oil-and-gas and 27.1% of the non-oil-and-gas revenues). At the same time, the federal government allocated 25.4% of planned expenditures. The weak ruble and relatively high Urals oil price combined with high inflation helped to boost revenue collection (even though the Urals trades with a discount to Brent so the average price of the former reached $89.1/bbl in March). The government didn’t need to borrow and couldn't do so in the current environment (net domestic borrowing in 1Q22 reached 3.5% of the annual target only).The budget execution statistics confirm the view repeatedly expressed in the notes of this series, that revenues will significantly exceed the annual target so that the expenditures could be easily amended. The most reasonable way would be to scrap the fiscal rule, stop accumulating reserves in FX, stop borrowing in excess of the current needs, and run a nearly balanced budget. There is also enough room to reduce the tax burden – in particular with regard to mineral resource tax.On the external side, the economy would benefit if the Russian government will be brave enough and realize sooner rather than later that matching the desire of the Western countries (i.e., stop exporting energy resources and other products to them) is the most reasonable way to reinvent the country’s economy in the new geopolitical narrative. Russia needs to keep the current...