“Budget rules” were given a firm price – Newspaper Kommersant No. 195 (7396) dated 10/20/2022

The State Duma adopted on Wednesday in the first reading a government bill on a new design of “budgetary rules”. They will start working in a truncated form from 2023, and in full from 2025. Due to sanctions affecting the volume of oil production and the size of the price discount for it, as well as due to the “limited predictability” of prices in the global energy market, the authorities decided to move away from the “cut-off price” and the ruble exchange rate when dividing oil and gas revenues into those that can be spend, and those that should be saved. Without special calculations (their absence caused comments from the Accounts Chamber), the basic oil and gas revenues were determined by a “hard” amount of 8 trillion rubles. The second part of the “rule” introduces the ceiling on budget expenditures as the sum of four components: all non-oil and gas revenues, basic oil and gas revenues, public debt servicing costs, and the balance of budget loans.

The amendments adopted by the State Duma in the first reading fix new budget rules in the Budget Code (BC). The goals of this mechanism have generally remained the same, but the design has been noticeably redesigned. Recall that the rules were introduced to solve two main problems. The first is to set a general limit on the spending that the government can afford. The second is to determine the moment when oil and gas revenues can no longer be spent, but start accumulating “for a rainy day” in the National Welfare Fund (NWF).

In the new design, the government decided to move away from the complex system of accounting for “cut-off prices” for oil and gas, as well as the forecast and actual exchange rate of the ruble, and to do as simply as possible – to set the base volume of oil and gas revenues in the form of a fixed amount.

For 2023–2025, directly in Article 96.6 of the BC, such an “oil and gas minimum” is defined at 8 trillion rubles. From 2026, it will be indexed by 4% annually (recall, this is the Central Bank’s inflation target).

For understanding, is it a lot or a little: this year the Ministry of Finance hopes to receive oil and gas revenues for 11.666 trillion rubles, of which 6.145 trillion rubles. defined according to the previous budget rules as basic (formally defined, because of the suspension of the rules, all additional income can be directed to current spending). In 2023, the flow of oil and gas money, according to the Ministry of Finance, should be reduced to 8.939 trillion rubles. Thus, with a base amount of 8 trillion rubles. additional income should amount to 939 billion rubles. In 2024, the “base” will be exceeded by 656 billion, in 2025 – by 489 billion rubles. These figures, however, in the current unstable conditions are very arbitrary.

The Accounts Chamber, in its opinion on the bill, notes that the government does not explain why exactly 8 trillion rubles are defined as the “base”. and why this amount should be included in the Budget Code on a permanent basis. In the explanatory note to the project, the White House confines itself to the following justification: “This amount of basic oil and gas revenues generally corresponds to moderately conservative estimates of external conditions with a stable ruble exchange rate in the range of 65-75 rubles per US dollar.”

The very transition from “cut-off prices” and the ruble exchange rate to a “fixed” amount is explained by the “limited predictability” not only of prices in the world energy market, but also of oil and gas production and export volumes, as well as price discounts for them under sanctions.

Recallthat due to the consequences of the military operation of the Russian Federation in Ukraine, it became more difficult to sell Russian oil, the remaining importers ready to buy its only at a discount. In addition, from December 5, the EU imposes an embargo on the import of Russian oil, and from February 5, on oil products. While the Ministry of Finance expects a decrease in oil production in the Russian Federation due to the embargo in 2023 by 5%.

As for the second part of the “budget rules” – on limiting the overall budget expenditures, it will now be described in the Budget Code as follows. The spending limit is the sum of four components: all non-oil and gas revenues, basic oil and gas revenues (the same 8 trillion rubles), public debt servicing costs, and the balance of budget loans. With such a set, the primary balance of the budget should be zero. He will determine how much money the budget will need to borrow in the financial markets.

The White House hopes to achieve such budget stability and reduce dependence on external price conditions only in 2025. For 2023-2024, the “budget rules” have been relaxed in terms of the spending ceiling. Within the framework of the transition period, “in order to maintain the counter-cyclical focus of the budget policy,” it is planned to increase the maximum amount of spending by 2.9 trillion rubles. and 1.6 trillion rubles. respectively, allowing a budget deficit of 2% and 1.4% of GDP. To cover these additional expenses (the fact that these amounts are not substantiated was also noted by the Accounts Chamber) is supposed to be covered mainly at the expense of the NWF money. Thus, the “budget rules”, as planned by the government, will be fully operational in 2025.

Vadim Visloguzov