- In addition, 0.66 trillion rubles is in the accounts with the Central Bank. (about $ 10 billion) of the currency acquired by the Ministry of Finance for the NWF in January-March 2020 (but not yet credited to the fund); at the same time, in March, the Central Bank launched a proactive sale of currency under the budget rule (sold 191 billion rubles, or $ 2.4 billion) and is likely to write off this amount later from the Ministry of Finance.
- In addition, at the beginning of April, the balances of the federal budget amounted to 1.85 trillion rubles. (including 1.2 trillion in bank deposits), follows from the data of the Ministry of Finance.
The budget rule does not give incentives to the economy
But the government cannot spend part of these accumulated reserves to support a declining economy due to additional budgetary spending, analysts say. Starting April 7, the Ministry of Finance will start selling currency from the NWF, obeying the budget rule – it obliges to buy currency when the price of Russian oil exceeds $ 40 at constant prices, and sell when prices are below this level. When selling foreign currency, the rubles earned compensate for the shortfall in oil and gas revenues, allowing (ceteris paribus) to keep budget expenditures at the planned level, but not to increase them.
According to the current budget rule, the spending of the NWF reserves only compensates for the oil and gas deficit – they are not intended for other purposes, explains Victor Tunev, Managing Director of Agidel Management Company, to RBC. The rule was originally conceived as symmetrical, adds Romaninchuk, Head of Operations on the Currency and Money Market of Metallinvestbank: in previous years, the Ministry of Finance saved up the currency in volumes determined by the formula, periodically resisting calls to raise the cut-off price, thereby saving less and spending more on stimulating the economy, and now the rule works in the opposite direction – at one time the Ministry of Finance made such an obligation, to abandon it means to lose market confidence in the budget rule.
If, for example, non-oil and gas revenues decrease (in particular, the receipt of taxes such as VAT or income tax), then they will have to be compensated by other sources – mainly additional government borrowing, Tunev continues. Spending more than the budget rule allows the SWF reserves to fail, and they will not be able to serve as a source of additional costs for stimulating the economy. “To save the economy from the crisis associated with the coronavirus, we need additional budget expenditures financed from other sources – from the state debt or the Bank of Russia. They will not lead to inflation, because they replace the falling demand, ”he argues.
In accordance with the budget rule (Article 199 and Article 213 of the Budget Code), the total expenses of the current year can only be increased by the amount of growth in the forecasted volume of non-oil and gas revenues (adjusted for income from managing the NWF funds and a possible increase in privatization proceeds), the deputy noted ACRA Director of sovereign ratings and macroeconomic analysis Dmitry Kulikov. Observing the letter of this norm, from the entire set of fiscal incentives, you can only increase state guarantees for debt obligations of enterprises (which has been done), issue budget loans, provide tax benefits (in particular, the authorities have already allowed tax deferrals for small and medium enterprises), he says . For a net increase in direct spending on stimulating the economy, a suspension of the budget rule will be needed, Kulikov is sure. In 2016, the old budget rule was suspended, after which a new rule was developed, which is now in force.
There are a number of other potential loopholes (redistribution of last year’s budget balances, which are just on deposits, for other purposes; increasing regional budget deficits), but all of them have very limited application, Kulikov claims. “It’s hard for me to imagine how in our practice it is possible to implement a nationwide anti-crisis agenda through regional budgets, although technically, probably, it is possible to expand budget loans with some anti-crisis goals and tight control. But if there is not enough control or resources, then there is a risk of getting a “Chinese” problem – a large increase in “shadow” debt in the regions, which the Chinese have been struggling with for more than a year, ”the expert says.
How much reserves will be spent in 2020
In 2020, the total volume of shortfalls in budget revenues (both oil and gas and non-oil and gas) will amount to 3-4 trillion rubles. at oil prices of $ 25–35 per barrel compared to the initial budget plan with an average oil price of $ 57, Kulikov from ACRA estimates. The budget list of the Ministry of Finance on April 1 implies total expenses in 2020 at the level of 20.8 trillion rubles, revenues – a little more than 20 trillion rubles. With a decrease in total revenues of 3-4 trillion rubles. the expected deficit of more than 3 trillion rubles. it will be possible to close the sales of currency from the NWF according to the budget rule by only 1.1–1.7 trillion rubles, the rest will have to be covered by borrowing, estimates Kulikov. Bloomberg agency reported that the Ministry of Finance is considering the possibility of increasing borrowings this year by 1-1.5 trillion rubles.
According to the calculations of Victor Tunev from Agidel Asset Management, at a price of Urals $ 30 per barrel, the expenditures of the NWF will amount to about 2 trillion rubles, and at a price of $ 20 – already about 3.8 trillion rubles. But this is based on the calculation for the full year, and for the nine months of 2020 (the Ministry of Finance began spending the NWF only in April), the amount spent will be approximately 60% of the annual, or 1.2–2.2 trillion rubles. To this must be added the replenishment of the NWF by 0.7 trillion rubles. due to the currency purchased in the first quarter. As a result, by 2020, the NWF will receive net expenses from operations of 0.6–1.2 trillion rubles, says Tunev (this does not include settlements from the NWF for Sberbank). Finance Minister Anton Siluanov said that NWF spending in 2020 will amount to about 600 billion rubles. at a price of oil of $ 30 per barrel Urals.
It turns out that the rigid design of the budget rule will not allow spending more than 1.7 trillion rubles. liquid reserves in 2020 (at oil prices – $ 25 per barrel) – this is about 10% of the aggregate liquidity cushion of the federal authorities, established on March 1.
There is no reservation in the Russian budget rule in case of force majeure
There are no explicit escape clauses in the budget rule of Russia, which are in the fiscal rules of other countries. These provisions allow you to temporarily deviate from the budget rule in case of rare and emergency circumstances (for example, the global financial crisis). Escape clauses are becoming an integral part of modern budget rules, they are adopted, for example, in countries such as Germany, Slovakia, Switzerland, Brazil, noted World Bank Chief Economist for Russia Apurva Sangi. RBC sent a request to the press service of the Ministry of Finance with a question about the possibility of a reservation and others.
In Russia, after economic sanctions in 2014 and falling oil prices in 2014–2016, increased demands on fiscal and monetary discipline took shape, the current fiscal rule looks like a bastion of economic stability, and the Central Bank does not risk adopting unconventional monetary stimulus measures, says Oxford Economics senior economist Evgenia Sleptsova. “But in unprecedented times and measures, many countries are unprecedented,” she adds, noting that countries in Europe have already begun to ignore budget rules for the sake of large-scale fiscal incentives to combat the economic consequences of coronavirus. “The markets would most likely have quietly forgiven Russia for deviating from the rule at such an extraordinary moment,” suggests Sleptsova.
How many incentives are needed
So far, the government has reserved only 1.4 trillion rubles. to combat the coronavirus-oil crisis – about 1.3% of GDP. The Ministry of Finance announced on March 23 that there will be no reduction in total budget expenditures, but so-called prioritization of expenditures, that is, a reallocation from lower priority to higher priority, will be carried out. Anti-crisis measures basically do not consist of direct new expenses, but of tax deferrals (that is, these taxes should, in principle, be paid, but later), guarantees for company loans, reduction of insurance premiums for small businesses, which technically will lead to a reduction in income of extrabudgetary funds but not the federal budget. A number of measures involving the release of liquidity to expand lending have been set by the Central Bank (for example, expanding a bank refinancing program for lending to small businesses).
Economists urge the government to increase fiscal stimulus. In comparison with other countries, the incentives of the Russian government are small: according to the COVID-19 Economic Stimulus Index database as of April 1 (.xlsx), the Czech fiscal incentives to fight the pandemic now make up 2% of GDP, the UK – 2.5% of GDP, Kazakhstan – 3.4% of GDP, Japan – 4.9% of GDP, Canada – 6% of GDP, Australia – 9.7% of GDP, USA – 10.5% of GDP.
The economists of CICAC calculated that without revising the budget rule, the incentive program could amount to about 2.4% of GDP. On April 1, the head of the Accounts Chamber, Alexei Kudrin, suggested that the economy would need a state aid package of 5% of GDP, that is, about 5.5 trillion rubles.
Kudrin explained to RBC that the support measures for the first package announced by the government amounted to 1.4 trillion rubles, of which 500 billion were for guarantees. But taking into account the replacement of budget shortfalls in order to fulfill all previously taken budgetary obligations, the projected amount of support already exceeds 5% of GDP (the federal budget’s shortfalls to be compensated will amount to about 3-4 trillion rubles), said the head of the Accounts Chamber. To finance part of these 5% of GDP, one can also consider an increase in government debt through an additional issue of government securities, Kudrin believes.
“But that is not enough. In the near future, additional business support is required for another 2-3% of GDP. Thus, the total support package should be at least 7% of GDP, ”Kudrin said. “If you have to extend non-working days or if the global recession turns out to be deep (a decrease in world GDP by more than 2%), additional help to Russian business will be needed.”
How to expand budget support
Authorities are considering options to build fiscal incentives beyond what the budget rule now allows. This follows from the law on the suspension of certain provisions of the Budget Code, signed by the president on April 1. In it, deputies allowed the government to increase total budget expenditures in 2020, firstly, by the amount of the Central Bank’s revenues from the sale of Sberbank’s shares to the government, which it will transfer to the federal budget, and secondly, by the amount of additional revenues from “certain types” of non-oil and gas revenues . And if the government’s plans to use the Central Bank’s revenues from the sale of Sberbank (1.3–1.5 trillion rubles) to finance social initiatives of President Vladimir Putin back in February, the wording about “certain types” of non-oil and gas revenues is a new option. In fact, it means that the government will be able to increase the cost of supporting the economy by the amount of growth of certain types of non-oil and gas revenues, even if the total non-oil and gas revenues decline in 2020.
RBC asked the Ministry of Finance about what “certain types” of non-oil and gas revenues are mentioned in the law (this is not specified in the document itself) and is considering whether the agency is taking advantage of this option. RBC also asked whether the Ministry of Finance is considering suspending or temporarily easing the budget rule to free up incentives for the economy. RBC also sent a request to the government.
“The question of the need to amend the budget rule depends on many factors, including trends in the further development of the economic situation in the country and the world. However, in the current situation it is still possible not to change the budget rule, ”said Alexei Kudrin.
Director of the Loko-Invest analytical department, a former official of the Ministry of Economic Development Kirill Tremasov wrote on Facebook on April 4 that at the current rate of compensation for lost oil and gas revenues from the NWF, the fund’s liquidity (more than $ 130 billion) “will last for a long time”. “Unless, of course, they begin to spend it on other purposes,” he added, not excluding changes in the future budget rule, which will increase the spending of reserves.
Viktor Tunev admits another variant of editing the budget rule – to “break the taboo” on the growth of domestic public debt and increase the additional component in the formula of the budget rule: 0.5% of GDP. In 2019, authorities relaxed the rule by allowing themselves to attract additional borrowing and spend an additional 0.5% of GDP annually. “This deficit is not related to the formation and use of the SWF, so it can be easily changed, especially in times of crisis,” Tunev summarizes.