The federal budget surplus widens in July prompting expenditures to be amended

RUSSIA ECONOMICS - In Brief 11 Aug 2021 by Alexander Kudrin

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The federal budget surplus reached R890 bn in 7M21 after in July it accounted for over R115 bn. In 7M21, the government spent nearly R12.8 trln, i.e., 69.3% of the formally approved annual target (R21.5 trln), implying no delays in allocating the budgetary funds. In July alone, the government spent almost R2.3 trln.The oil-and-gas revenues reached nearly R4.8 trln in 7M21 (79,7% of the annual target), while the non-oil-and-gas revenues climbed over the same period to R8.9 trln (69.5% of the annual target). In July alone, the government collected nearly R1.0 trln of the oil-and-gas revenues. The non-oil-and-gas revenues reached nearly R1.4 trln last month. As seen, the collection of taxes was well ahead of the annual plan, therefore pointing to a potentially significant surplus in 2021 as a whole (assuming no additional spending to the formally approved annual spending target). A rebound in the oil price combined with the ruble-to-dollar exchange rate seen in 7M21 helped the budget collect more revenues from the energy sector. Accelerated inflation helped to boost non-oil-and-gas revenues. Meanwhile, elevated inflation keeps the ruble weakening in nominal terms in the long run, and this weakening limits an appreciation of the ruble in real terms.GKEM Analytica repeatedly mentioned previously that in 2021, Russia’s fiscal performance was expected to be much better than what was suggested by the government plan. Currently, it looks as though the federal budget surplus could be around R2.5 trln (assuming unamended expenditures). Hence, the government won’t be able to withstand the temptation to increase spending this year, but at this stage, it is unclear by how much. Howe...