The government’s main budget priority was named at the Moscow Financial Forum: everything for victory

Reshetnikov and Nabiullina argued again: does the ruble need a membrane?

The VII Moscow Financial Forum (MFF-2023), organized at the Manege exhibition center by the Ministry of Finance of the Russian Federation and the government of the capital, ended in the capital. If last year they discussed the reality of sovereign policy from its high rostrum, this time the theme of the event sounded more global: “In search of a new balance: the Russian financial and economic system in the period of global transformation.” The plenary discussion, however, showed that the search is still very far from being completed: financial and economic departments differ in forecasts, have different assessments of inflation and the value of regulating the ruble exchange rate.

The main session of the forum began with a reassuring statement from the head of the Ministry of Finance of the Russian Federation, Anton Siluanov: he said that both this year and next there will be enough money in the budget for everything. “There will be enough for what is planned,” he clarified, answering a question from the moderator of the session, Chairman of the State Duma Committee on Budget and Taxes Andrei Makarov, whether difficulties would arise due to the deficit in the federal treasury. You shouldn’t expect sequestration, that is, a reduction in government spending, in the near future, but the “powers that be” have very clear funding priorities, and in the first place there are expenses for the SVO. “The main emphasis is on ensuring our victory – the army, defense capability, armed forces, fighters – everything necessary for the front, everything necessary for victory is in the budget,” Siluanov emphasized. “This is quite a strain on the budget, but it is our absolute priority.” The fulfillment by the state of its social obligations is in second place in importance. In addition, funds from the budget will also be spent on investments in technology and modernization of such important and sanctioned sectors of the economy as machine tool manufacturing, mechanical engineering, etc. At the same time, it will not be possible to complete the current year without a budget deficit, although the figure will not be higher than 2% of GDP, which corresponds to planned estimates, the minister assured.

The wave of positivity from the head of the Ministry of Finance was picked up by the Minister of Economic Development Maxim Reshetnikov, saying that the forecast for growth of the Russian economy at the end of 2023 of 2.8% looks more than realistic. However, it was not possible to maintain this attitude for long, since Makarov recalled the strong difference in official figures that the department has been observing over the past two weeks. Thus, at the Eastern Economic Forum (EEF), First Deputy Head of the Ministry of Economic Development Ilya Torosov said that the department has a plan to return the national currency to the corridor of 70 to 80 rubles per dollar and that inflation for the current year will be at 5.3%. However, the dollar is still trading above 96 rubles, and the forecast for price growth has already been revised upward. “Unfortunately, the inflation estimate for 2023 at 7.5% also looks realistic,” Reshetnikov admitted, noting that the words spoken by his deputy at the WEF were taken out of context, and that they related to the previous forecast, and in the fall the figures were revised. As for the ruble exchange rate, the head of the Ministry of Economic Development drew the attention of those present to the need for new methods of controlling it. “I consider multiple courses to be a means of destroying a free economy,” Reshetnikov noted. “Nevertheless, we can calculate and discuss some restrictions: control or at least monitoring of transfers. It seems to me that we need to build a more complex system. Let’s try new tools, otherwise we will have to constantly pay higher rates for openness.” According to Reshetnikov, the problem of constant jumps in the ruble exchange rate and inflation should be solved not by standard methods of currency control, but by introducing elements of the Chinese model, where there is a certain “membrane” between the domestic and foreign currency markets, which allows the yuan exchange rate to remain relatively stable.

However, this idea did not find understanding among the rest of the high-ranking speakers. The head of the Bank of Russia, Elvira Nabiullina, pointed out the risks of multiple exchange rates and the negative consequences for the financial sector when dividing the foreign exchange market and using such “membranes”. And when proposing to introduce restrictions on the movement of capital, it is necessary to take into account that businesses find ways to circumvent most of such measures. At the same time, you should not take restrictive steps just to demonstrate activities to support the ruble exchange rate; you need to think about their effectiveness and consequences for business. “We raised the key rate, but this does not give the same impetus as when we had the movement of capital fully open,” she noted during the discussion. “But if our rate now remained 7.5-8.5%, the rate would be much weaker.”

The Ministry of Finance, for its part, is also working on the stabilization and predictability of the ruble, however, it takes into account that there are different players in the market who need different levels of the national currency. “Who needs a strong course, and who needs a weak one. It seems to me that everyone is in favor of a stable and predictable exchange rate,” Siluanov explained. – We want this too. We are already doing this together with the Central Bank.” At the same time, the Ministry of Finance, like the Bank of Russia, sees risks in using the mentioned “membrane” and, in this aspect, against the “Chinese way of regulating” the foreign exchange market. However, it is also incorrect to say that the authorities will not do anything at all with the ruble exchange rate. On the sidelines of the MFF 2023, Russian Presidential Assistant Maxim Oreshkin said that the Ministry of Finance’s decision to reduce the borrowing program in 2023 by approximately 1 trillion rubles will have an impact on the foreign exchange market and reduce demand for currency. In theory, this should have a beneficial effect on the ruble exchange rate, but none of the speakers dare to talk about it directly: too often the practice of the Russian economy has refuted any theory.