The specter of sequestration hovers over the Russian budget: do not make ends meet

The question of why there is little income and a lot of expenses arose as soon as the Ministry of Finance of the Russian Federation published data on the execution of the federal budget for January 2023. As a result of the fact that there were a lot of expenditures, significantly more than revenues in the first month of this year, a large federal budget deficit was recorded. In numbers, it looks like this: Treasury spending in January 2023 amounted to more than 3.1 trillion rubles, exceeding the same indicator last year by 59%. But less than 1.4 trillion rubles were collected in the federal budget, which turned out to be 35% less than the revenue in January 2022. As a result, the federal budget deficit in the first month of this year turned out to be significantly higher than 1.7 trillion rubles.

The information is actually very important and, I can immediately say, disturbing. State employees, of course, understand this anyway: after all, their incomes depend entirely on the filling of the state treasury.

And the rest, it would seem, have nothing to worry about if their salaries are not paid from the budget? Everything is very simple: if there is not enough money in the budget, and expenses need to be financed somehow, then one of the possible ways in this case is to increase taxes. Who is most likely to be affected by tax increases? That’s right, those same employees of the non-state sector of the economy, who seem to have nothing to worry about the shortfall in budget revenues. And if a business has to pay more taxes, then it is very likely that this will also affect the salaries of people employed in it – these salaries can at least slow down in their growth. So everyone needs to worry about filling the treasury.

And this is not just a hypothetical story. It is significant that just a couple of days after it became known about the problems with the federal budget, information appeared that the authorities were going to impose a large one-time payment on business in the amount of 200-250 billion rubles. Here’s a blow to non-state employees …

There is another reason why information about the execution of the federal budget in January 2023 is important. Since the spring of 2022, most of the significant economic information of a statistical nature has become non-public, it has ceased to be published. Such secrecy was explained by the fact that this, they say, will help to more successfully resist the sanctions. Perhaps some of the information could really be classified, but today so many important financial data have left the public field that it has become a clear overkill. And these are not only some figures that were previously published by the Russian Ministry of Finance and related to the budget, but also important information from the Federal Tax Service, the Federal Customs Service, Rosreestr, state corporations, etc.

When a mass of the most important statistical information of an economic nature has become a secret, one involuntarily begins to appreciate very much the remaining statistical data that is still publicly available. And in this regard, information on the execution of the federal budget for January is very important. After all, it allows us to draw conclusions about what is actually happening with the economy.

What exactly? Indeed, at first glance, everything seems to be fine with the economy, even better than one might expect. It was thought that the country’s GDP would fall in 2022 by 8-10%, and the decline, apparently, would be about 2.5% (final data has not yet been published). You can, of course, talk a lot about why this happened, but it’s still difficult to be glad that you didn’t fall as hard as you could. Because after all, whatever one may say, but fell, the economy is still in crisis. The information on the state of the budget just fully confirms this.

The federal budget is the main financial plan of the country. If this plan somehow does not stick together, then there is cause for concern. The federal budget is an indicator of the state of the economy, which, following the results of January, showed the presence of problems. Thus, the deficit based on the results of budget execution in the first month of this year alone greatly exceeded, as mentioned above, 1.7 trillion rubles. Is it a lot or a little? Indeed, for many, let’s be frank, such figures mean little: trillions, billions… So, according to the results of the entire 2023, that is, in 12 months, the federal budget deficit should amount to a little more than 2.9 trillion rubles. It turns out that in just one, the first, month of 2023, we drew out about 60% of the annual budget deficit. Agree, the magnitude of the budget deficit indicator becomes more understandable with such a comparison.

Another figure for completeness: in 2023, all expenditures under the National Economy section of the federal budget should amount to 3.5 trillion rubles. I repeat: this is the entire amount of expenses under this section for this year. And the amount, as we see, is quite comparable with the existing and planned federal budget deficit. Therefore, the federal budget deficit is indeed very large.

Another important question: why did such a poor result with the execution of the federal budget at the beginning of the year suddenly turn out? The Russian Ministry of Finance explained in this regard that revenues were short due to a decrease in quotations for Russian oil and a decrease in natural gas exports. Now let’s explain with numbers: the federal budget for 2023 was drawn up based on the fact that the price of Urals oil will be $70.1 per barrel. But in reality, in January 2023, Russian oil had to be sold cheaper by about $20 per barrel (this was reported earlier by the Ministry of Finance). This is a huge difference: $70.1 and about $50 per barrel. But there is a considerable probability that such a difference in price will continue throughout the year.

Now about why the federal budget expenditures increased so significantly in January. The Ministry of Finance of Russia explains this by the prompt conclusion of contracts and advance financing for certain contracted expenses. Well, as a partial explanation for the increase in costs, this, of course, can be accepted. Although a natural question arises: what, the plans were not to conclude contracts promptly?

Finally, about where the money will have to come from in order to balance the budget. One possible source has already been mentioned – to take additional contributions from the business. But this, if this happens, of course, will not solve the problem of the budget deficit. In addition, it is possible to raise a hundred or two billion rubles in this way, and our deficit is already in the trillions.

There are two important sources for covering the budget deficit: market borrowing and the National Welfare Fund (NWF). Borrowing money by the state in the domestic market is already actively going on. As for the NWF, the state stash, there is still enough money there: 10.8 trillion rubles as of February 1, 2023. However, not all of these funds can be used to balance the budget. The fact is that very significant funds of the NWF have already been invested in various kinds of assets (projects). Therefore, for the needs of the budget, the volume of the so-called liquid assets of the Fund (funds in accounts with the Bank of Russia) is allocated. So, the volume of these assets, as of February 1, amounted to the equivalent of 6.3 trillion rubles. Now we compare this figure with the deficit planned for 2023, the previously mentioned 2.9 trillion rubles, and it becomes clear that the safety cushion in our NWF remains not so big.

And if this goes on with the excess of expenses over income, then in reality the deficit can amount to a much larger amount compared to the planned one. I would estimate it at about 5 trillion rubles at the end of the year, or even more.

Of course, the Russian Ministry of Finance will also resort to domestic borrowing to balance the budget, but it’s still worrying, because calculations show that even in this case, the NWF will not last long. Back in January, in order to cover the federal budget deficit, according to the Ministry of Finance, 3.6 tons of gold in anonymized form were sold. Selling gold is also, of course, a way out, but somehow it started a little early.

Let’s say we are going through the current year 2023. Already good! There is enough money to solve budgetary problems in the National Welfare Fund, and then? Today, in February 2023, it is possible and necessary to worry about the budgetary problems not so much of the current one as of the future, 2024. When there are no sources to cover budget expenditures, then these expenditures have to be cut. Remember what a sequester is? It seems to be a term from the distant past, but no matter how you have to shake off the dust from it …