snowball effect or temporary difficulties?

For three months, the federal budget deficit, that is, the excess of spending over income, amounted to more than 4 trillion rubles

At the beginning of the year, the Ministry of Finance reported a deficit of 1.76 trillion in January.

Prime Minister Mikhail Mishustin, speaking on March 23 with the government’s annual report to the State Duma, reported that as of March 8, the deficit had increased to 3.3 trillion.

However, already on March 28 on the site (https://budget.gov.ru/Budget) The Unified Portal of the Budgetary System of the Russian Federation has promptly reported that the deficit has exceeded 4 trillion rubles.

An update was announced for April 10, but it was not yet available at noon on April 11.

It looks like we have a snowball effect. Recall that the annual budget of the Russian Federation for 2023 was compiled: in terms of income – 26.13 trillion, in terms of expenses – 29 trillion. That is, an annual deficit of 2.9 trillion was provided. And in three months – already more than 4 trillion.

On March 23, Prime Minister Mishustin explained the sharp increase in the deficit by saying that “this is the so-called advanced financing”: at the beginning of the year, large amounts are allocated for large projects and programs. Then everything will more or less even out.

Vladislav Inozemtsev, an independent expert and director of the Center for Post-Industrial Society Research, also speaks about this. In his opinion, panic moods are formed on the basis of data for the first months, but they are not indicative, because in January-February a considerable share of the state defense order was advanced. During the year, the deficit will be smaller, and as a result will be determined at 5.5 – 6.5 trillion rubles.

So, still 2 times more than expected.

“But even this amount is not catastrophic: it can be covered by 2-2.5 trillion from the National Welfare Fund, by 1.5-2 trillion by domestic borrowing, and by the remaining 2 trillion by emission.”

Of course, still not thank God. The word “issue”, that is, the inclusion of a printing money press, does not inspire optimism.

Much more pessimistic are the estimates of Igor Nikolaev, chief researcher at the Institute of Economics of the Russian Academy of Sciences. Events are developing according to an openly crisis scenario, he believes. The budget should be equalized, but it is not clear how. Russia is cut off from external sources of borrowing, revenues from raw material exports have collapsed by almost half.

The reasons for this situation are well known: Western sanctions, a sharp reduction in raw material imports, a price ceiling imposed by Western countries on oil and gas, which we now sell not to Europe, but to India and China, but at a big discount. As well as a reduction in the tax base – after all, hundreds and hundreds of foreign companies have already left Russia and are leaving.

So far, several options for replenishing the budget are outlined: intensive development of domestic production, cost reduction, higher taxes on Russian companies, voluntary contributions from businesses, and even recovery of money from companies in unfriendly countries in the event of the withdrawal of their assets from Russia. This is stated in a special extract from the minutes of the meeting of the Government Commission for Control over Foreign Investments in the Russian Federation:

“The obligation to voluntarily transfer funds to the federal budget in the amount of at least 10% of the market value of the relevant assets.” (https://minfin.gov.ru/ru/document?id_4=301633-vypiska_iz_protokola_zasedaniya_podkomissii_pravitelstvennoi_komissii_po_kontrolyu_za_osushchestvleniem_inostrannykh_investitsii_v_rossiiskoi_federatsii_ot_2_marta_2023_goda__1434)

There is another way to replenish the budget. In something paradoxical, in something natural. We are talking about a depreciation of the ruble, respectively – about an increase in the dollar and euro. It is already happening. Since the beginning of the year, the dollar has risen in price by 14%, as of the morning of April 11 – 81.7 rubles, the euro – 89.2 rubles.

If the fall of the ruble continues, then the state budget revenues … will grow. This financial mechanism was explained back in 2014 by Russian President Vladimir Putin at a press conference following the G20 summit in Brisbane, Australia. (https://rg.ru/2014/11/17/summit.html) Literally:

“The fall in energy prices, I think that this is an opportunistic event associated with an increase in production and a decrease in demand. There are two fundamental factors. There is also a third factor – monetary, fluctuations in the dollar exchange rate, which also affects oil prices. I want to emphasize that the decline in oil prices does not affect the Russian budget, I mean the decision of the Central Bank to switch to a floating exchange rate. What we used to sell for a dollar and get, conditionally, 32 or 35 rubles, today we sell for the same dollar and get 45-48 rubles. Revenues to the budget even increased” (https://www.amic.ru/news/vladimir-putin-na-g20-rost-kursa-dollara-privel-k-rostu-dohodov-byudzheta-289643)

The financial expert Evgeny Zmiev, widely cited by the press, spoke about the same thing today:

“Russia is an exporter, our ruble must become cheaper in order for our products to be in demand on world markets. We must understand that each weakening of the ruble is another trillion or two in budget revenues. This is the potential for growth in pensions, benefits, stability of payments, no increase in taxes, this is a budget surplus and economic prosperity” (https://news.myseldon.com/ru/news/index/281635000)

However, this prosperity has a downside – rising prices for imported equipment, for imported food and manufactured goods. Domestic producers will also “adjust” here. In a word, inflation. That is, the depreciation of the ruble. And this hits the pockets of all Russians, especially the poor. Let us hope for the best.

Sergei Baimukhametov.

Photo from the website of the State Duma of the Russian Federation