The government increases domestic borrowing amid widening federal budget surplus

RUSSIA ECONOMICS - In Brief 12 Jul 2021 by Alexander Kudrin

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Minfin reported that it continued to play the same tune in June and 1H21 as a whole as the federal budget surplus widened and net domestic borrowing increased. In gross terms, the government borrowed on the local market around R1.5 trln, while in net terms the figure was still impressive – around R1.3 trln. The federal budget surplus widened to R626 bn. In June alone this surplus reached R184 bn.Note that the 2021 budget plan assumed the federal budget deficit of around R2.8 trln. The reality once again turned very different compared to government expectations, but it continued to act as if it didn’t happen – the borrowing continued according to the plan. It happened in the past as well and was always distortive for the money market as the government still sticks to the fiscal rule which is rather rigid.Earlier GKEM Analytica mentioned that in 2021 as a whole the budget may be either in surplus (if the planned expenditures remain unamended) or balanced (in the case if the government decides to spend an additional R0.7-0.8 trln). In 1H21 the government spent R10.6 trln, which is 49.4% of the annual target. On the revenue side, the government collected nearly R3.8 trln of oil-and-gas revenues which is 63.1% of the annual target. For the non-oil-and-gas revenues, the respective figures are R7.5 trln and 58.6%. Therefore, fiscal performance in June didn’t challenge the aforementioned GKEM Analytica’s earlier expectations.Evgeny GavrilenkovAlexander Kudrin