The day after tomorrow is inevitable, like tomorrow – Newspaper Kommersant No. 159 (7360) of 08/31/2022

The government concluded a series of “strategic sessions” on economic development on Tuesday ahead of the presentation of the draft budget for 2023-2025. The last two sessions were held at the government’s focal point – on the electronics industry and the development of the financial system, as well as a summary session, at which the short-term and medium-term priorities of the White House were generally discussed “in the main areas of economic policy in the face of external sanctions pressure.” The main change compared to June-July is that the government is now discussing not overcoming the expected problems of the second half of 2022, but the correction of the medium-term development program.

The consolidated session was attended by all the leadership of the government, the presidential administration, the Bank of Russia, governors, heads of departments in the State Council, and heads of key state-owned companies and state-owned banks. De facto, this is the final meeting on economic policy in the extended government before the presentation of the draft budget to the president – according to Kommersant, it should take place on September 12.

As of today, the key discussions on the topics on which the strategy session was held were generally completed by the end of August 2022 at meetings in the White House. Thus, the issue of resuming the “budget rules” that promised back in July, the issue of the resumption of the “budget rules” in the new modification, was resolved in principle – the budget design will be based on limiting the spending of Russia’s oil and gas revenues in nominal terms, defined as a derivative of the oil price (about $ 60 per barrel) and the volume of its extraction. In this situation, the question of what exactly will be the restrictive amounts of the “transition period” of 2023-2024, when federal spending is expected to exceed this threshold, will mainly come down to the question of the exchange rate of the Russian ruble against the foreign trade basket. Recall that back in July, the issue of strengthening the ruble against the dollar, caused by the simplification (due to the sanctions imposed by the largest economies against the Russian Federation after the start of the military operation of the Russian Federation in Ukraine) of the exchange rate and the greater than earlier dependence of the exchange rate on the size of the current account surplus, looked fundamental and key – the strengthening ruble was considered not only a threat to exporters from the Russian Federation, but also indirectly to the state of the federal budget.

But now it is assumed that the introduction of “nominal” budget rules will stabilize the ruble at the level of 65-75 rubles / $ for the next year or two, that is, a little higher than the usual level, and this will be enough to remove most of the budget risks.

In general, the same fate apparently befell the rest of the issues of economic policy, which two months ago were considered fundamental and required an immediate radical solution. The most important change that can be seen from Tuesday’s sessions is that the White House is more or less but confident of passing the peak of the economic downturn in the second half of 2022 with limited losses. Prime Minister Mikhail Mishustin defined the tasks of the consolidated session as follows: “It is necessary today to form a common vision for the further social and economic development of Russia – both in the short term, which should be reflected in the draft federal budget for next year, and for a longer period, when they will be implemented state programs and national projects. That is, the government should come to the September budget meetings not only with an adequate budget for 2023 (the task is simplified by the fact that the budget for 2022, apparently, will be executed with a minimum, about 1-2%, deficit, the budget reserves of the White House from the previous record years, there are no problems with domestic borrowing, and the costs of the military operation in Ukraine, unlike sanctions, do not create large macroeconomic risks – however, the issue of this has not been publicly discussed by the White House since February 2022), but also with an adequate vision medium-term program of sectoral development in the new conditions of foreign trade.

In principle, the main answer to the question about the macro-strategy with the adoption of a decision on a new “cut-off price” format (higher than the previous $45 per barrel) has already been given in one way or another – this is somewhat large federal spending, prioritization of state financing problematic due to sanctions and lagging in the development of industries (microelectronics, mechanical engineering, aircraft industry), the formation of an internal financial market in a more savings-oriented economy than foreign investment, and the focusing of infrastructure development on the needs of an adjusted model. The problem of domestic demand, according to many representatives of the extended government, will be solved one way or another by a new level of budget spending – it will inevitably transform into consumer demand along the chain (one of Kommersant’s interlocutors compares the situation with 2011-2012).

The “lengthening” of the White House’s plans after the sanctions shock is apparently based on an analysis of the results of the second quarter, which are acceptable in the face of very strong external economic pressure – the authorities rarely discuss the inertia of the economy (which may provide this effect), they are encouraged by the successful launch of the parallel import program and the prospects rapid expansion of trade with “neutral” countries (PRC, India, Southeast Asia). Therefore, the focus has shifted to tasks that foreign trade cannot solve – this is a more closed and focused on even slower than before, but at the same time organic internal development: the formulas for stimulating the transition to this model should be completed by September.

Dmitry Butrin