Trillions of dollars question: is the sequestration of the federal budget awaiting Russia?

Trillions of dollars question: is the sequestration of the federal budget awaiting Russia?
Analytics

2 July , 19:19
After July 1, the passion for voting and coronavirus will obviously go down to a minimum.

And now the authorities are faced with a dilemma: what to do with the budget, in the expenditure items of which there were no costs to combat the disease, and the income does not provide for an economic halt for three months and a collapse in consumer demand?

Yelena Ivanova, Natalia Seibil

For the first time in two and a half years, Russia living on a tight budget. The last budget with a plus sign was published by the Ministry of Finance in April 2020, the Ministry of Finance. Since May, the country spends more than it earns. Compared to May 2019, revenues fell by 41%, compared to April of the current year - by 2.6 times. The budget deficit amounted to 655.8 billion rubles. Oil and gas revenues decreased by half compared with April, and non-oil and gas revenues - by 2.7 times. For the whole of 2020, the Russian treasury will receive 4 trillion rubles. less than planned, suggested in early May Minister of Finance Anton Siluanov.

In addition to coronavirus, which the stopped the world economy for three months, in our country there is another reason why money in the country has become much less. This, of course, is about oil. Hydrocarbons still determine the financial well-being of Russia. In March, due to Russia's refusal to cut production, OPEC countries broke the deal. After that, oil prices collapsed. In April, Brent futures were trading at minus $ 37, which meant that producers paid consumers for each barrel shipped. As a result, in March and April, the average price amounted to 19 dollars. This is almost 4 times less than for the same period in 2019. The last time such a fall was in 1998, when oil was worth $ 11 per barrel, and in Russia suffered an economic crisis, default and a change of government.

Just as money loves silence, so does the Ministry of Finance - a department that is extremely restrained and reluctant to share information. Moreover, the flow of news is cut out if the situation is unstable. So, in the report of the Ministry of Finance, one figure suddenly disappeared - the ratio of deficit to GDP. Therefore, it cannot be said how much the country's GDP has declined. This happened for the first time in 11 years. The Ministry of Finance is silent, the Ministry of Economy does not answer this question.

- There are no official ratings. Refusing to publish estimates, the government does not allow the expert community to assess the magnitude of the disaster. It is clear that the Ministry of Finance has more sources of knowledge than ours. We cannot assess the situation and understand how effective the measures taken by the government are, - explains "NI" Alexander Suslin, the Head of Fiscal Policy, Economic Expert Group.

No one really wants to say how many really the Ministry of Finance will receive less revenue at the end of the year. Due to the fall in industrial production, the budget returned to the time before 2017 and a deep dependence on oil prices. In April, OPEC and non-cartel oil exporters, including Russia, nevertheless agreed on a new deal. It entered into force in May. After that, oil prices began to rise. “Demand for oil in the world began to recover amid the OPEC + deal and the lifting of restrictions, but the market is still fragile”, - said Alexander Novak, the head of the Russian Ministry of Energy. At the end of May, Russian oil went up by almost 70% - on average, each barrel went for export at 31.03 dollars. However, export volumes also fell - by 15%. This means that budget revenues turned out to be the same as if oil was worth $ 26.4. Now the price of oil is close to the budget rule laid down by the Ministry of Finance in the main financial document - 42.5 dollars per barrel. And this in itself pushes the prospect of sequestration.

- The Ministry of Finance will not change the budget rule and will not change the cut-off price. If the oil price falls, the Ministry of Finance has the right to unpack the National Wealth Fund. In principle, by balance I do not see a big disaster with the budget. I don’t even exclude the possibility that even if the oil price is at the level of $ 35-40 per barrel, the budget deficit may be smaller and it can be covered by other sources, - says Vladimir Tikhomirov, Chief Economist at BCS Global Markets.

However, oil is an extremely volatile commodity. If the global economy rises again, the budget rule will sink into oblivion. Therefore, there are less optimistic calculations.

- We made calculations for the fall in GDP with an average annual oil price of $ 30 per barrel, - tells Alexander Suslin. - In this case, the fall in GDP will be 4.5%, and the budget will collectively under 8 trillion rubles. In this case, the budget will become deeply deficit. However, we believe that the price of oil in the first half of the year will be $ 38 per barrel, in the second half of the year a little lower - $ 37 per barrel. The budget deficit will be, respectively, with an annual oil price of 38 dollars per barrel (about 70 rubles / dollar) about 3.5-4.0 trillion rubles. In these The calculations used data on expenditures from the Budget Law. If, in fact, expenses are increased (anti-crisis measures, child benefits), then the deficit will be greater. I repeat that the estimate is rough, and I emphasize that this is without taking into account the likely second wave of the pandemic...

In early June, the government announced that it was developing anti-crisis program. Total expenses was announced by the Prime Minister: it is planned to spend 5 trillion rubles to maintain the economy. However, no one has seen the program yet. Three months ago, a joint commission of the Federal Assembly was created, which, together with the government, should participate in its development. But it didn’t go beyond a joint video conference. The last post on the site dates back to March 15th. Three months have already passed, but no one saw the general plan. How will the program be funded? What costs will be reduced? Which populations will receive assistance and will they receive at all? Which sectors will be fully funded, and who will have to wait? Neither the experts nor the parliament have answers to all these questions.

Sergey Katasonov, First Deputy Chairman of the State Duma Budget and Tax Committee, stated to NI:

- We have no changes to the budget for 2020. The anti-crisis program has not been submitted to the Duma. Over the past three months, we have seen how the president stages a series of measures to support the president and business. But in general, the concept is being prepared by the government, Prime Minister Mishustin. Of course, Finance Minister Siluanov is cheating on this program. But this program and proposals for it were not received by the Duma. In connection with the pandemic, we gave the government the opportunity to redistribute the budget through a commission of the parliament - the Duma and the Federation Council. Today, in manual mode, they carry out such changes. But the program itself is not discussed in the Duma. What to guess? The president outlined this program in parts. But entirely clearly we do not see it. If the Minister of Finance Siluanov announced the expected deficit, then given that we had planned a surplus of 1.5 trillion, the program should be in the region of 6 trillion rubles ...

Since the economic management regime is again manual, and strategic decisions cannot be made, we are talking about tactical steps, which are popularly called hole plugging. But the amount is named, and experts and the public can appreciate this overall figure. 6 trillion rubles - is it a lot or a little?

Georgy Ostapkovich, Director, Center for Market Studies, HSE:

I believe that 5-6 billion is satisfactory, it is 5-6% of GDP. In other countries, this is 8, 10, 12% of GDP. We give 5% of GDP. With our reserves, we have never had such reserves either in the new Russia or in the old USSR.

This money can line up a long line. In May, the Higher School of Economics conducted a survey in which 4 thousand heads of Russian industrial enterprises took part. Only 8% of them reported improvement. In a third of the respondents, the situation worsened, in the majority it worsened earlier and therefore remained at the crisis “bottom”. The average load of factories and plants in May dropped to 58.4%, which is comparable to the 2008 crisis. Already in the first quarter, a third of industrial enterprises in Russia were unprofitable and lost, according to Rosstat, 1.5 trillion rubles. May drop in industry at 9.6%; the Russian economy owes to raw materials industries. Slow recovery in oil and gas prices and other raw materials promises further problems not only to the budget, but also to state corporations. Gazprom reported a loss of 306 billion rubles in the first quarter, and Rosneft became unprofitable for the first time in 8 years. According to echoes coming from high offices, it is reported that the anti-crisis program is closely intertwined with the president’s pre-crisis task for national projects. And half of the money from this package will be spent not on helping enterprises, but on new projects. The economy will receive only one trillion living money.

- These are benefits, these are additional funds to help doctors, support small businesses, subsidized interest rates on loans. - clarifies Vladimir Tikhomirov, - Some loans may not be returned if the staff list has not been reduced. But its coverage is supposed at the expense of domestic debt. The government will issue debt instruments, OFZs and raise funds to cover expenses without spending from the FND.

Despite the expected deficit of 4 trillion rubles, all the experts we interviewed unanimously say that the government will not go for sequestration under any circumstances. But sequestration is a procedure and a public rejection of previously accepted obligations. Actual cost reductions cannot be avoided. And the main battle takes place on the sidelines.

Vladimir Tikhomirov, Chief Economist at BCS Global Markets:

- The adoption of a law on the reduction of expenditure items and its passage through the Duma - the likelihood of such a scenario is small. But in fact, the underfulfillment of budget expenditures, that is, the actual sequestration, is very real. If you look at the implementation of national projects in the first five months of the year from what the Ministry of Finance reported, the implementation of national projects there is at the level of 28% of the plan. And for a number of other budget items, including due to quarantine, this allows you to keep budget expenditures less, despite budget underperformance due to oil prices and a drop in industry, so there will be no sequestration, but there will be actual cuts in expenditure items.

First Deputy Chairman of the State Duma Budget and Tax Committee Sergey Katasonov:

- The deficit will be covered through the NWF and borrowing. The head of the Ministry of Finance Siluanov did not say that we are forced to sequestrate. With a probability of 80%, this will be financing from borrowed funds, both internal and external. If we are talking about reducing programs in the budget by 10-15%, I do not think that these will be social budget items. If they will, it will apparently be what other articles...

The crisis, as you know, is not only a time of testing, but also of new opportunities. 60-70% of Russian industry consists of state-owned enterprises, a third of which are unprofitable. What to do with them, no one understands. But they certainly represent ballast for the economy.

Georgy Ostapkovich, Director, Center for Market Studies, HSE:

-35% of the enterprises we have are unprofitable that operate with minus value added. I believe that if these enterprises go bankrupt, then thank God, because industry needs to break new ground. But what to do with people, how to employ them? These are pre-pensioners, poorly educated. There will be a question of unemployment. God be with him, with the volume of industry. Two factors are employment and population income. This is what should not happen. What does a 10% drop in industrial production mean? This means that we will not build cranes, tanks, missiles...

Two budget items - defense and social spending - the government will not touch with the greatest degree of probability. The Russian president, continuing the tradition of Russian tsars, also believes that Russia has two allies - the army and navy. Social budget items may not increase much, but they won’t exactly decrease — in an environment of economic uncertainty, no one will want to annoy the population. But it turns out that in addition to new industrial or infrastructure facilities, nothing to cut. One can only guess or wait who will win this tender, and who will have to wait.

There is one more unknown in this equation - whether or not there will be a second wave of coronavirus. News from the United States on the spread of covid in the southern states cause deep concern. Maybe that's why the Ministry of Finance and the government do not reveal the cards. With a minimal budget deficit, getting money in the markets does not seem problematic. But the situation can change dramatically if the economy rises again. And then the magic wand of the Russian budget - oil - will turn into his curse again.

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