The treasury was depleted by everything at once: the NVO, the admission of new regions to Russia, new anti-Russian sanctions and the need to fulfill social obligations. What awaits us and how will we survive the upcoming budget deficit?
Vladimir Putin at a meeting on the economic situation said that the federal budget surplus for the first 9 months of 2022 amounted to 1.4 trillion rubles , and oil and gas revenues in the III quarter. both at the federal and regional levels turned out to be higher than expected. But the holiday was spoiled by Anton Siluanov. According to the Ministry of Finance, already in August, oil and gas revenues dropped to a minimum since June 2021, in September they turned out to be 22.7 billion rubles worse than forecast, and the federal budget was executed with a deficit throughout the summer months. And like a cherry on top, the new draft budget includes a deficit of 1.32 trillion rubles by the end of 2022. This is how an excess of funds can turn into a shortage in just 3 months.
Igor Nikolaev , chief researcher at the Institute of the Russian Academy of Sciences, explains such divergent assessments of the state of the budget by rapid changes that are not always taken into account.
- If we evaluate the situation since the beginning of the year, then, of course, due to the jump in prices for energy resources, oil and gas, a lot of additional income was received. This strengthened the current surplus. But then the trend changed - incomes became less, but expenses did not decrease. If such an unfavorable trend continues until the end of the year, then a surplus is unlikely to be recorded at the end of the year.
But the deputy from the Communist Party of the Russian Federation and the first deputy chairman of the State Duma Committee on Budget and Taxes Mikhail Shchapov is more optimistic:
- A deficit of 1-2 trillion rubles is not critical for our country. Due to the volatility of oil and gas prices, the dependence on these resources that has not been overcome, our budget can quite easily lose such amounts simply due to sharp price hikes, the rejection of long-term contracts, and the strengthening of the ruble. The strengthening of our currency by about 10 rubles leads to falling budget revenues of 1 trillion. But we have a fairly balanced budget, considerable accumulated reserves, which allow us to close such a deficit in a calm manner.
But the most interesting is ahead of us. The 2022 deficit is just a warm-up. In 2023, the Ministry of Finance will have to find 2.9 trillion rubles already, and there will not be an excess of money in the next 2 years. According to Mikhail Shchapov, the main reason is the fall in oil and gas revenues. And it is inevitable.
- The fact that oil and gas revenues would fall was clear at the end of spring. Sanctions limit sales markets for oil and gas companies, force them to sell products at a discount, and reduce production. Serious problems will soon begin to arise with mining equipment supplied and maintained by foreign companies. If you look at the budget for 2023, then there is a fall in oil and gas revenues by almost 3 trillion rubles.
Igor Nikolaev believes that the real deficit will be even greater. And he also warns that it will be very difficult to close the holes.
- I think that the deficit will be more than 2.9 trillion rubles. We know the official position - government borrowings will become the main source of covering the budget deficit. But how realistic is it? The Ministry of Finance is in a very difficult situation with its attempts to borrow through OFZ. Investors are very reluctant to take the risks of buying OFZs. But the Ministry of Finance has no other way, apparently. Where else can you get money? External borrowing is excluded. I think that domestic borrowing will not be able to cover the deficit in the required amount.
Indeed, the September auction for the placement of government debt securities failed. Due to lack of demand, it had to be simply cancelled. But you still need to patch up the holes somehow. How exactly this will be done - the opinions of experts differed. Ilya Grashchenkov , President of the Regional Economic Development Center Foundation, is sure that the “new oil” is people and business.
- The Ministry of Finance traditionally proposes to take money from business taxes. But it is not taken into account that business is a cow that can either be milked or slaughtered. When a business has nothing to sell and no one to sell, there is no investment, and the Ministry of Finance wants to raise taxes, this will only lead to the closure of the business and further migration of entrepreneurs. Such an approach could hit the economy even harder. The government is now making plans from the logic of the past peacetime. Now we need to decide where we are going in general. Either the economy must be put on the mobilization rails of the state plan, or we want development, then such a “NEP 2.0” is needed. Under him, for sure, financial holes will at first be even larger due to tax cuts, but then there will be a colossal increase.
Mikhail Shchapov is betting on the FNB. In extreme cases, you can always “borrow” the necessary amount there.
- To compensate for the decline in budget revenues, additional MET payments have already been introduced for gas exporters. Next year, it is also planned to increase the burden on exporters of oil, gas, fertilizers and so on. However, we consider these measures insufficient. So far, the Ministry of Finance names only the FNB from realistic sources of its coverage. But at this rate, the FNB will last us for several years. And now you need to think about what to do next. If everything goes according to plan (and nothing has gone according to plan for the past three years), then by the end of 2023, the volume of the fund will decrease from 9 to 6 trillion rubles. Actually, in 2022, the budget deficit is covered mainly by the NWF. Since the beginning of the year, it has decreased from 13 to 9 trillion rubles. Well, unfortunately, our country was never able to use the funds of the National Welfare Fund for the development of the economy, and it turned into a banal pillow for a "rainy day".
Whatever one may say, but any option leads to an early exhaustion. Either business or the NWF will run out.
But despite this, there are expenditure items in the budget that will most likely not be cut. The SVO requires a lot of money, and it’s hard to imagine that the Russian army just took and left the DPR, LPR, Kherson and Zaporozhye regions. It is also necessary to pay pensions, including to new Russians, to support the birth rate with maternity capital, and to fulfill other social obligations.
Predictably, in the top was the article "National Defense", which is funding the army. But an increase of 300 billion rubles looks very modest. The mobilized were promised a monetary allowance of 195,000 rubles a month. 200 thousand people, according to the Ministry of Defense, have already been called up, and 300 thousand people will have to be mobilized. This is an additional 58 billion rubles a month only based on the content of the private. Officers have more money allowances, plus various allowances. In addition, military personnel must be clothed, put on shoes, fed, and transported. A trillion rubles a year for partial mobilization in its current form can be safely pledged. An increase of 300 billion is enough for a couple of months. But there were also plans to re-equip the army with modern equipment: Armata tanks, S-500 air defense systems, Su-57 aircraft ...
On the other hand, expenditures under the item "National Security and Law Enforcement" will grow immediately by 58.41% and will almost equal the expenditures on the army. Under this article, the National Guard, the Ministry of Internal Affairs, the FSB and other security forces are financed. The government is clearly up to something. Ilya Grashchenkov believes that such distortions speak of changes in the course of the NWO.
- The bias towards the "National Defense" is very large. It looks as if the authorities understand that the stage of the NMD is coming to an end, and then it is necessary to switch to the regime of a counter-terrorist operation. Under him, it is not the offensive that becomes more important, but the defense of already occupied territories. The army was needed during the offensive, in positional battles. Territory protection is a different format. We need more equipment and specialists of the National Guard. In addition, the mobilization history shows that non-professionals do not help much at this stage. It is possible that a bet was made on more professional fighters of the National Guard.
An increase in social spending by more than 1 trillion rubles looks like a feast during the plague. Of course, the DPR, LPR, Zaporozhye and Kherson regions that joined Russia are not just some territories with destroyed infrastructure, they are also people. Namely 6.4 million people. The population of Russia at once grew by 4.4%. People in the joined territories have to pay pensions, maternity capital and other benefits that Russians rely on. Salaries in these regions were already small. For example, in the Kherson region, according to the State Statistics Service of Ukraine, in January 2022, the average salary was UAH 11,778 (RUB 29,568). This is close to the subsistence minimum for a family of 2 (from January 1, 2023, the subsistence minimum will be 14,375 rubles). There is no escape from increased spending.
But, as mentioned earlier, the budget deficit will grow, and the holes will be patched up at the expense of the NWF. There will be enough reserves for a couple of years, but then you will have to cut the social program in all possible ways. How might it look? Increasing the retirement age at an accelerated pace, abolishing various payments such as maternity capital, free travel to a place of rest or treatment for residents of the Far North, can further cut pensions for working pensioners ... This is what Russian citizens may face in a couple of years. In the meantime, like real hussars, we walk on the last ones.
If it arrived somewhere, it means that it disappeared somewhere, and not only in the FNB. Some items of expenditure will cut very much.
First of all, the National Economy will go under the knife. Ilya Grashchenkov believes that there is no other way: in the current conditions, it is highly likely that money will fly into the pipe without the desired effect.
- In conditions of budget deficit, it is necessary to reduce programs aimed at development. In 2022, they are all still being implemented. They will continue in 2023: the St. Petersburg Economic Forum is planned, national projects will be preserved, including those for investment development. But you need to look at the situation objectively and cut out some of the expenses that will simply go to waste. Many national projects need to be revised radically.
Mikhail Shchapov points out that the foundations are now being laid for the failure of the economy in the future - in 2030, for which there were so many hopes.
- I would separate GDP indicators and expenditures on the economy. What the state spends on supporting the economy has an effect mainly in the medium term - on the horizon of 5-7 years. The costs that we are now budgeting will have an effect by 2030. So now we are sacrificing our future in order to keep spending on socially important areas. The dynamics of GDP is now largely related to the external environment: sanctions, falling imports, a reduction in oil and gas production, the strengthening of the ruble, and so on.
There is one paradox in the budget: while reducing spending on the national economy, investment growth relative to GDP is included - one of the most important parameters indicating the potential for economic growth.
Igor Nikolaev explains: the state can invest in infrastructure.
- Such an increase in investment is the hope that public investment will be significant. In particular, we are investing significant amounts in road construction. But it should be noted that the level of investment is still significantly less than the target of 25% of GDP, which was dreamed of.
With new territories, there will really be where to spend money. It is still unclear how much the restoration of 4 regions will cost. The Federation Council previously estimated the restoration of Donbass at 1.5 trillion rubles ($20 billion at the time of the assessment), the World Bank gave an estimate 3 times more - $60 billion. Prime Minister of the DPR Vitaly Khotsenko stated at SPIEF-2022 that Russia would send more than 2 trillion rubles to restore the republic within 2 years, Andrey Suzdaltsev , an associate professor at the National Research University Higher School of Economics, believes that 1 trillion rubles will be required to restore the DPR and LPR. One thing is clear: the bill will go to trillions of rubles, because even the FTP for the development of Crimea until 2025 is estimated at 1.37 trillion rubles. And there were no fierce battles. And all this burden will again fall on the FNB.
Even the deputies themselves frankly say that the planned investments are fantastic. In particular, this opinion is shared by Mikhail Shchapov . Too many factors against.
- We consider the growth of investments indicated in the 2023 budget, to put it mildly, unrealistic. With sanctions, a drop in production, a reduction in exports and imports, the state remains the only major investor. There are indeed interesting articles in the budget that could, in theory, help restart entire industries. For example, 36 billion rubles are allocated for research and development in the aircraft industry. But in general, now the state is reducing the investment part of the budget in order to keep operating costs at the same level. So the government's investments are unlikely to give the budgeted figures. So far, it looks like the dreams of individual leaders in the government.
But even if we imagine that sanctions are lifted, oil and gas prices are breaking records, the budget fills up on its own, and the government manages to fulfill its investment plan, then it will not be enough to enter the economic growth path that will make it possible to earn and improve well-being. The budgeted investment level of 17-18% of GDP is too low. World practice shows that sustainable development requires investments at the level of 30%, and China has maintained the bar of 40% for a long time. Also, by the way, at the expense of public funds. Resource depletion is unavoidable.
Igor Nikolaev is also surprised by the prioritization of national projects: Russia refuses to support exports, and hence the influx of money.
- I was surprised by the financing of the national project to stimulate exports - this is the national project "International Cooperation and Export" - there is a significant decrease compared to what was previously included in the budget for 22-24 years and compared to the actual costs of 2022. For 2022, 153.9 billion rubles were planned, and according to the draft federal budget for 2023-2025 - 126.4 billion for 2023. Here's why: we are talking about reducing exports of agricultural products. Although agricultural products in this most difficult situation are almost the only ones that, along with fertilizers, for example, have export potential. And even the EU said that agricultural products and mineral fertilizers do not fall under the sanctions. Relatively speaking, grain should become our new oil. And we have significantly reduced support for exports. In my opinion, from the point of view of budget priorities, this is completely wrong. They all did the opposite.
Meanwhile, Russia is gearing up for a record grain harvest of 150 million tons this year. But instead of making money on foreign supplies, there are still export restrictions in the form of duties. The surplus of grain has already dropped prices this year to 10,000 rubles per tonne of wheat (in some regions, prices have dropped to 7,500 rubles). Farmers were left without profit and without money to carry out work on the maintenance of fields. The point is put by the Ministry of Agriculture, which limits the import of seeds, despite the critical dependence on a number of crops.
The entire bet is made on the reserves of the National Welfare Fund. As long as they are, everything is relatively good. But what will happen when the NWF empties, as the Reserve Fund emptied in 2017? Then a period of real economy and belt-tightening will come, which has not yet been seen. The government has no other plan yet.