The government of the Russian Federation may suspend the budget rule as additional revenues appear

The weakening of the ruble due to a monthly lag in the payment of taxes in July did not particularly increase the oil and gas revenues of the budget, but their revenues nevertheless grew due to the calendar factor – the quarterly payment of additional income tax (ATD). As a result, in August, the Ministry of Finance will finally turn the budget rule in the “right” direction and, for the first time this year, will not sell, but buy foreign currency and gold. However, this is not what it seems. After all, the Central Bank is starting to buy yuan in parallel, and as a result of these multidirectional efforts of the two regulators, the market is waiting for the same net sale of currency. However, further, as additional income appears, the government can suspend the budget rule and not accumulate reserves, but direct the proceeds to current needs. This can also be evidenced by the statement made on Thursday by the Ministry of Finance about the intention of the authorities to think about how to start spending less from the NWF to close the budget deficit.

The Ministry of Finance on Thursday reported on oil and gas revenues for July and seven months. For the second time this year (the first was in March), these revenues exceeded the baseline, that is, 8 trillion rubles broken down by months, the minimum necessary for the budget in 2023 to cover expenses from oil and gas. In July, oil and gas budget revenues amounted to 811 billion rubles. with a base of 653 billion rubles. This is noticeably more than it was in June (529 billion rubles), and slightly more than last July (770 billion rubles).

The current round of ruble depreciation, which started at the end of June (the exchange rate is included in the oil and gas tax formulas), has not yet been able to significantly affect the amount of revenues – in July they were calculated based on June indicators (taxes are calculated from the price in the previous month, the export duty lag is less – half a month) . So the main increase in July compared to June came from AIT (295 billion rubles), which is paid irregularly, four times a year. However, compared to last July, AIT, as well as other “oil” payments to the budget, was collected last month still less. A small increase in July year-on-year terms (by 5.3%) was provided only by an increase in the amount of MET on gas and gas condensate.

Based on the results of all seven months of the year, the situation with oil and gas revenues is still not optimistic: 4.193 trillion rubles were collected, which is 41% less than it was for the same period in 2022.

The amount of monthly basic oil and gas revenues is also important because one of the budget rules is tied to it: if the base is short, the Ministry of Finance must sell the currency, if it is exceeded, it should be bought into reserves from the market. As additional income finally appeared in a single July, the Ministry of Finance on Thursday announced the transition from selling currency and gold on the market to buying them. The department announced that it would allocate 40.5 billion rubles for the acquisition of these assets – 1.8 billion rubles each. per day from 7 August to 6 September.

However, even if all this money is used to buy yuan and there is nothing left for the share of gold, the interventions of the Ministry of Finance will be offset by the actions of the Central Bank, which previously announced that since August, in order to mirror operations related to investing funds from the National Wealth Fund (NWF) inside Russia, starts selling yuan in the amount of 2.3 billion rubles. per day and will do so until the end of January 2024. Thus, as a result of the efforts of the two regulators, the market will see a net sale of foreign currency for at least 0.5 billion rubles. per day, that is, in fact, there is no talk of a transition from the sale of reserves to their accumulation according to the budget rule at least in August.

Perhaps the adjustment of the fiscal rule, the application of which may put additional pressure on the already weakening ruble, will occur later.

The Treasury on Thursday released another rather vague announcement that it plans to consider spending less money from the NWF to close the budget deficit. Up to 2.9 trillion rubles are provided for this this year, and 1.3 trillion rubles next year. “Taking into account the assessment of the situation in the economy and the financial system, the government may consider reducing the use of NWF funds to finance additional federal budget expenditures in the transition period of 2023-2024,” the ministry warned. This may mean that the Ministry of Finance hopes for additional budget revenues in the remaining months of the year, and this money can be directed to current expenses without taking it into reserves through the purchase of foreign currency.

Note that in fact this will mean the suspension of the budget rule, which, however, the government has already resorted to. Recall, after the start of the military operation of the Russian Federation in Ukraine, the purchase of foreign currency in reserves was suspended along with the rules. As it turned out later, almost ten months. During 2022, most of the additional oil and gas revenues went to current expenses, and by the end of it, the government passed a law on new, softer budget rules through the State Duma. In a truncated form, they have been working since 2023 (in terms of replenishing reserves), in full (with the rules on setting a ceiling on expenses) they should come into force in 2025.

The correction of the budget rule will be facilitated by the fact that in August oil and gas revenues from the budget should still grow due to both a new round of ruble depreciation and a noticeable rise in the price of Urals: in June, a barrel of this grade cost an average of $55.3, in July – already $64.4.

The potential increase in revenue, however, will depend not only on the price of oil, but also on the volume of its declining production and external supplies (the decrease in the latter, however, is not so significant for the budget, since the main part of oil and gas revenues is MET, and not duties on export).

Vadim Visloguzov