Everything goes according to the rule – Newspaper Kommersant No. 168 (7369) of 09/13/2022

Work on the preparation of the budget for 2023-2025 has been completed; on Monday, a meeting was held with the president on its design. There are no signs of its change in comparison with summer projections. To all appearances, the Ministry of Finance managed to defend the idea of ​​a gradual, but fairly quick transition to a budget balanced with a higher than previously, but still limited, oil price level of about $60 per barrel. At low rates of world GDP growth, this allows financing the budget deficit from the National Wealth Fund (NWF) for three years, at relatively high rates, the question of how to replace the NWF will become more relevant than now.

The President’s meeting on the basic parameters of the budget took place on Monday according to the schedule approved several weeks ago. There were no government representatives in the open part of the speeches (the prime minister, some vice-premiers, ministers of finance and economy), the head of state limited himself to describing the current situation with the federal budget for July-August, general forecasts and stating that by September 2022 the only , in fact, the issue in budget projections – the transition strategy, that is, the amount of government spending for 2023-2024 – has not been resolved: the president recalled the disputes, “what to pay more attention to, where to allocate more funds or save more and create a“ pillow security”, how to create it in the new conditions and what is the “airbag” in modern conditions, when we have a well-known and inevitable process of de-dollarization.

As a result of the meeting, no decisions were made.

Nevertheless, according to Kommersant’s data, the Ministry of Finance will be ready to reveal the main parameters of the federal budget in figures within a week.

From this, apparently, it should follow that the objections of the Ministry of Economy to budget projections and its proposals to increase government spending over the next two years for a more active adaptation of the economy under the sanctions were basically not accepted, and as a result, the scheme known since June 2022 will be implemented. of the year:

• budget expenditures for 2023-2024, regardless of the current revenue situation, will be financed based on the conditional price of oil exports slightly above $60 per barrel (with slightly reduced volumes),
• in 2025, a new version of the “budget rules” would require the federal budget (with a low project deficit) to be balanced based on an estimated oil price of $60 per barrel.

Recall that for about a decade the budget of the Russian Federation was projected as balanced at oil and gas export prices of about $40-45 per barrel, which made it possible to create an impressive NWF from above-planned oil and gas revenues, since 2020 part of the NWF has been spent to cover an unplanned “covid” deficit, but changes in the volume of funding for current budgets allowed the White House to create a significant spending reserve.

The reason for the Treasury’s caution is clear from the very mixed results budget execution as of August, it is obvious that, according to the results of September, the federal budget, despite the ultra-high prices for the export of oil, oil products and gas (so far with an excess of compensating for the decline in demand for these export goods of the Russian Federation after the start of the military operation of the Russian Federation in Ukraine – even before the start of real sanctions restrictions The EU, their largest importer from Russia, for their supplies to the countries of the union) will become scarce. It is in 2022 that this deficit will be insignificant, the latest estimate is 1.2% of GDP, which is very close to the concept of “balanced”. The main volumes of the income deficit will one way or another fall in 2023, while the basic question that the government does not and cannot answer now is whether it is worth including in the projections a strong reduction in global GDP growth, which determines the demand for Russian energy resources (the military operation and its the consequences have significantly increased the dependence of the Russian Federation on raw material exports, reducing the possibility of exporting other goods, including food, chemicals and timber).

The scenario of the “global energy crisis” is very unfavorable for the budget: even despite some reduction in part of government spending, mainly indirectly related to the sanctions restriction of imports, year-on-year federal spending increased by 19.5% in January-August, according to the statistics of the Ministry of Finance, while with the growth of oil and gas revenues, the drop in revenues from the rest of the economy amounted to about 20% – through the reduction of VAT payments, import taxes and a number of other taxes. The logic of the Ministry of Finance suggests that in the conditions of economic contraction, it is worth adhering to a fairly conservative strategy, that is, if a strategic decision is made, similar to the medium-term increase in the “cut-off price” of oil in the budget to $60 per barrel (in practice, it is somewhat more complicated: the new version of the “budget rules” proposes to fix the nominal limit of spent oil and gas revenues; this assumes that with a decrease in oil and gas supplies to the world market, their price will rise), the increase in government spending, including through financing the budget deficit from the NWF, should be limited to 2023–2024. The logic of his opponents in government, publicly presented by the leadership of the Ministry of Economy, requires higher spending for this period in order to launch a somewhat higher wave of GDP growth within the cycle and to finance the accelerated adaptation of the economy to the changed conditions of foreign trade.

• In other words, the proposal of the Ministry of Finance is to provide reserves for any of the possible scenarios (and with a significant decrease in global GDP growth, in its projections, the NWF remains significant, 5-6% of Russia’s GDP, by the end of 2025).
• The proposal of the Ministry of Economy, apparently, makes sense to decipher as follows: it doesn’t matter if the world economy enters a phase of low growth, and the EU economy into recession, it is worth preparing the ground for higher endogenous growth in advance with any external demand.

It should be noted that for all the seeming principled nature of the dispute on this issue “in money”, the size of the disagreements in the two proposed strategies is unlikely to exceed 1–1.5% of GDP. In this light, the actual changes in budget expenditures over the past two years are significantly higher, as is the value for the budget structure of the new estimated “cut-off price”, which de facto has been 20–25% higher than the one that was in effect until 2020 for more than a month. At the same time, the size of projected budget expenditures, in principle, corresponds to the expected income from raw material exports. In the event that the actual price of oil exports from the Russian Federation does not exceed $70 per barrel on the horizon of two years (which looks very likely, at least now), the question is how to deal with excess oil and gas revenues (we recall that earlier it was sterilized in The NWF, which is now limited — even in light of its potential reserve in yuan — will be largely theoretical.

Note, however, that a conservative solution would mean a limited opportunity for a host of discussed “breakthrough solutions” – from the social sphere to infrastructure.

Significantly more than the implementation of previously approved national projects and plans of the White House, the conservative construction of the budget should not withstand, while domestic political demand for new ambitious goals and objectives in 2023–2024 may increase sharply, and the expectations of law enforcement agencies, the military-industrial complex and related branches of the military operation in Ukraine has already increased.

Dmitry Butrin