“Do not change the foundation if the roof is blown off.” What will be the financial policy of Russia in the next three years

Russia is facing a budget deficit for four years in a row, and the reserves accumulated in the “fat years” have begun to melt. This follows from the draft “Guidelines for Tax, Budget and Customs Tariff Policy for 2023-2025”, presented on June 20 at a meeting of the State Duma Budget Committee. RTVI has studied this document (available to the editors), on the basis of which the budget of Russia will be formed.

The consequences of sanctions are only growing

The task of the state for the coming years is to create stable and predictable economic conditions. “If your roof is torn off by a hurricane, you can change the rafters, repair the roof, install an overhead light, but you can’t change the foundation, because after that the house will collapse,” Central Bank Deputy Chairman Alexei Zabotkin cited the allegory at a meeting in the State Duma (RTVI followed the broadcast). The foundation is macroeconomic stability.

  • The Ministry of Finance expects the economy to return to pre-crisis levels by 2025. After a 7.8% decline in 2022 and a 0.7% slowdown in 2023, GDP will resume growth at 3.3% in 2024 and 2.7% in 2024-2025.

Some other analysts’ forecasts are less optimistic. S&P predicted Russia’s ten-year return to the level of 2021. Similar point of view adheres to Head of Sberbank German Gref.

“We are not yet seeing the full impact [санкций] “They are only growing so far,” said Alexei Kudrin, chairman of the Accounts Chamber, at a meeting in the State Duma.

  • The real disposable income of Russians in 2022 will fall by 6.8%, wages – by 3.8%, the Ministry of Finance predicts. Growth will resume in 2023, by 1.3% and 0.8%, respectively.
  • Inflation will be 17.5% in 2022 and 6.1% in 2023. CB hopes tame price increases to 5-7% in 2023 and bring inflation to a target of 4% in 2024.
  • The ruble exchange rate will be 76.7 rubles per dollar in 2022 and 77-81 rubles per dollar in 2023-2025.

Investment will fall by 19.4% in 2022 and start to grow slowly in 2023, but will not overcome the pre-crisis level due to technological restrictions and the curtailment of large export-oriented projects, the Ministry of Finance noted.

Public debt will increase by 34%

In the coming years, Russia’s budget will be in deficit: 1.2% in 2022, 1.1% in 2023, 0.9% in 2024 and 0.8% in 2025. For comparison, in the pandemic 2020 deficit was the largest in 10 years – 3.8% of GDP or 4.1 trillion rubles.

“Holes” in the budget in the coming years will be closed by domestic borrowing (OFZ) due to Russia’s isolation from external financing markets. The Ministry of Finance plans to increase the public debt by almost 34%, or by 7 trillion rubles. — from 20.9 trillion rubles. by the end of 2021 to 28 trillion in 2025. In relation to GDP, its share will be stable – about 16%. The Ministry of Finance proposes to define the cost of servicing the public debt as a budget deficit and repay it through new borrowings.

Before the pandemic, Russia’s public debt was minimal, but increased by almost 40% in 2020. Russia spends 1.4 trillion rubles on public debt servicing. per year, and in 2025 expenses will exceed 2 trillion rubles, before the pandemic they were exactly half as much, Siluanov noted.

Oil and gas revenues will decline

Alexander Miridonov / Kommersant

The US banned imports of Russian oil in March. In June, the European Union also introduced a partial embargo on maritime supplies. Export volumes are less predictable than at any time in 20 years. The transmission of rent volatility to the economy could be “disastrous for development,” the Finance Ministry notes:

  • Oil and gas revenues will gradually decrease by 25.5% – from 10.433 trillion (7.4% of GDP) in 2022 to 7.772 trillion rubles. (4.6% of GDP) by 2025;
  • The share of budget revenues from oil and gas will decrease from 40.9% in 2022 to 30.2% by 2025;
  • The price of Urals oil will be $80.1 per barrel by the end of 2022 and will fall in price to $61 per barrel by 2025;
  • Oil production will decrease by 9.3% – from 524 million tons in 2021 to 475.3 million tons in 2022.

Russian Urals oil cost $87,491 per barrel on average for the month from May 15, 2022 to June 14. It is trading at a discount of more than $33 per barrel to Brent prices.

We must keep the “airbag”

Yuri Martyanov / Kommersant

Budget expenditures will not be financed by emission (growth of the money supply or “printing press”), otherwise hyperinflation will “eat” these funds, Siluanov assured. Due to such a policy, inflation in Turkey reached 70%, in Argentina – 45%, the minister recalled.

The National Wealth Fund (NWF) will become the main source of financing expenses. It will decrease to 12.837 trillion rubles (9.1% of GDP) by the end of 2022 from 13.565 trillion rubles (10.4% of GDP) in 2021.

During the “particularly acute” crisis of 2008-2009, the government spent half of the reserves, Kudrin recalled. “If we completely use up the NWF within two or three years, what is possible, given such volatility, will the government have a reserve to mitigate crises in the future?” Kudrin asked. Without the airbag, there will be wage cuts and social spending cuts, he warned. In the words of the Deputy Chairman of the Central Bank Zabotkin, “if we spend all the “manna from heaven” received due to temporary favorable conditions, we will have much more cyclical economy (alternating boom and recession – RTVI note)”.

The Ministry of Finance is looking for ways to avoid a negative scenario. Previously, it was protected from it by the budget rule – to save in “fat years” and spend in difficult ones. When oil is more expensive than the cut-off price ($44.2 in 2022), foreign currency and gold were purchased for additional oil and gas revenues for accumulation in the National Welfare Fund.

In addition, the fiscal rule cured the “Dutch disease” by reducing the ruble’s dependence on high oil prices. The withdrawal of windfall profits during the period of high oil prices saved the economy from overheating, and the “injection” of funds during crises softened the fall. “We need to cool down the party when it is in full swing and a surge in inflation is possible, and vice versa, “warm up” when there is a cooling and a decline in prices for raw materials,” Valery Mironov, deputy director of the HSE Development Center, explained to RTVI.

Because of the sanctions, the budget rule canceled for 2022. Now the state spends all oil and gas revenues. This was one of the reasons for the re-strengthening of the ruble. The dollar on June 21 fell below 55 rubles for the first time since 2015. With a strong ruble, the budget receives less revenue, 40% of which comes from the currency for energy exports. The optimal rate for the budget is 70-80 rubles per dollar, pointed out First Deputy Prime Minister Andrey Belousov.

The Ministry of Finance is preparing a new budget rule – softer than the previous one. The main thing is to predict oil and gas revenues in such a way that their volume is minimally dependent on external conditions. Siluanov revealed some of the proposals at a meeting in the State Duma:

  • The Ministry of Finance will forecast the volume of budget revenues based on a “moderately optimistic” level of oil and gas revenues – based on the weighted average forecasts of export revenues and oil prices from the forecast of the Ministry of Economic Development;
  • In order not to exhaust the NWF, a new spending limit will be set, Siluanov added.

Reserves will be accumulated in rubles

Konstantin Kokoshkin / Kommersant

The West “froze” the assets of the Central Bank in dollars and euros. “The dollar and the euro are toxic and will continue to be so in the coming years,” Siluanov stated. Therefore, the Ministry of Finance allows the accumulation of reserves in rubles and currencies of “friendly” countries.

“The ruble is unreliable and not widely used in the global economy,” Valery Mironov, deputy director of the HSE Development Center, commented on these intentions to RTVI. The share of the yuan in international settlements slightly exceeds 3% against 40-50% for the dollar and the euro, and it is difficult to use the yuan to support the foreign exchange market during a decline in commodity prices. “You can keep reserves in gold or create a stock of imported products, such as chips, or buy patents,” the expert cited alternatives.

Pre-crisis plans to spend reserves on priority construction projects remained in force – 5 trillion rubles. from the NWF will be invested in infrastructure projects in 2022-2025. In 2022-2025, funding for national projects, the main idea of ​​the presidential term until 2024, will increase two-fold – to almost 20 trillion in 2022-2025. “These goals have not been canceled,” the Minister of Finance stressed.

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