Our alarm budget: what awaits Russian finance in 2023

Prime Minister Mishustin, speaking in the Duma, promised that the budget deficit will no longer be, the situation is under control. "The short-term budget deficit and a small increase in the national debt do not pose a threat to us," the prime minister said, adding about advanced financing - "money should start working from January 1."
The Ministry of Finance, reporting the missing 1.76 billion already by the end of January, explained the anti-record with accelerated VAT refund and the conclusion of many contracts. In February, another 820 billion was added to this amount.

- The deficit largely arose statistically, on the one hand, due to the tax bill, and on the other hand, due to the fact that many expenses were advanced in the 1st quarter, including those transferring from last year, but they were calculated as expenses of this year. There was an effect of an abnormally high deficit in January. And in February, it already turned out to be half as much. In March, obviously, it will be half the size of February. Therefore, the numbers are stabilizing here, although this does not mean that there are no risks," says economist Nikita Maslennikov.

But in March, it will not become less, if only for the first 8 days another 720 billion went into the negative. It seems that only the government believes that the budget deficit will not go beyond the planned limits. Few in the expert community share this optimism. Yes, in real terms, expenditures have decreased by 10% compared to last year, but the risks of budget expenditures going beyond the planned are high, and the budget deficit is unlikely to be "short-term". Economists are divided on only one thing – how much more will the excess be, 2.5 – 3% of GDP instead of the planned 2 or significantly more?

The main factor of stability has been and remains the same – oil and gas revenues.

What's wrong with the "cash cow" of the Russian budget

There are no guarantees that oil and gas revenues will remain at the planned level, giving the budget about 35% of the revenue, says Vyacheslav Kulagin, head of the Center for the Study of World Energy Markets at the Institute for Energy Research of the Russian Academy of Sciences. On the contrary, there are objective factors that are expected to reduce exports of oil, petroleum products and natural gas. After the introduction of a ceiling on crude oil prices in Europe and the countries of the anti-Russian coalition, Russian oil companies were able to successfully redirect it to Asia, although the reorientation cost the Russian budget in January 48% of oil taxes, compared with the previous year, or 36% of export income. The situation is even more difficult after February 5, when the ban on the sale of Russian-made petroleum products came into force. The International Energy Agency believes that Moscow will not be able to redirect NP to other markets. Russian experts agree with this.

- Petroleum products, the bulk of which went to Europe, are supplied today only with some exceptions. It is obvious that we will have a drop in income, - Vyacheslav Kulagin states.

As for gas, the situation is as follows: now Gazprom exports 5 times less gas in the European direction than two or three years ago. Of course, the volume of deliveries via the Power of Siberia 1 pipeline to China is gaining. However, Chinese sales can not even be compared with European ones. If Gazprom sold more than 150 billion cubic meters to Europe in 2021, then in the future it will be possible to send a maximum of 38 billion cubic meters to China via the eastern pipe.

The price, compared to last year, fell 6 times – from $ 3,000 per thousand cubic meters to less than 500. Gazprom's Chinese contracts are tied to the price of oil, so the gas monopolist could not earn on record prices in the vast expanses of Asia. With falling volumes and prices, this will not be possible in Europe either.

- Last year we passed the top of the price bar that could only be thought up, and with very good volumes, we even managed to increase the volume of exports of oil and petroleum products. The pipe deliveries were quite good, especially in the first part of the year. Already now we understand that with such a combination of factors, we will most likely not pass the top of the price bar, we will fall below, and most importantly, we are going lower in volume," Vyacheslav Kulagin believes.

Sales of natural reduced gas are growing, but this will not affect the budget – it includes zero duty and zero MET.

On the contrary, Gazprom will pay increased tax charges – in the budget for 2023 and for the next two years, the indicators of last year are the basis. That's just the income he will not have such. Few people believe that the price of gas will reach $ 3,000. In addition, the Ministry of Finance apparently forgot that 3 of the 4 branches of the Northern Streams were blown up, and pipeline gas goes to Europe only through Turkey and Hungary via the Turkish Stream.

The situation with oil is much better than with gas, but it was announced that Russia was cutting production. The price of "black gold" is not falling as dramatically as for "blue" - for gas, however, futures show a trend: if last year in March it was $ 107 per barrel, now the barrel costs $ 70.

Of course, last year was a record year for budget revenues from oil and gas, so there will be a geopolitical premium, but we will have to get out of it at low volumes and low price.

How to finance the budget deficit

Former Minister of Economy, Professor Andrey Nechaev believes that the deficit will be much larger than planned:

- We will have to climb into the pot more, which has already lost so much weight due to the fact that it has already been actively climbed into and about 300 billion is frozen. And borrow more, which has two disadvantages: since the Western capital market is closed, and Western investors have left the Russian market, borrowing is becoming more and more expensive, respectively, future debt servicing will also be more and more expensive. Already, according to official estimates of the same Ministry of Finance, by 2025 the cost of servicing the national debt will be twice as high as it was in 2021.

The "pot", or NWF, has indeed shrunk, but it will lose weight even more: if in 2021 its volume reached 10.4% of GDP, then by the end of 2023 it will amount to 8% of GDP.

- From the NWF there is an opportunity to spend on financing the budget deficit, for which, in fact, it exists. This is one of his functions and responsibilities. But it is not dimensionless, and, again, it is formed at the expense of oil and gas revenues. Therefore, this year, yes, it is a more or less reliable source. How the situation will develop in the coming years is not yet obvious, – says economist Nikita Maslennikov.

The second way to finance the deficit is to sell currency. On behalf of the Ministry of Finance, the Central Bank sells yuan. The daily sales standard in March is lower than in February. On the one hand, this indicates the normalization of the budget. On the other hand, the decline may indicate an oversupply of yuan in the market. Since the yuan is a conditionally convertible currency, there is always the question of who will buy it.

You can, of course, borrow more, but there are a few disadvantages, recalls Andrey Nechaev:

- Since the Western capital market is closed, and Western investors have left the Russian market, borrowing is becoming more and more expensive, respectively, future debt servicing will also be more and more expensive. Already, according to official estimates of the same Ministry of Finance, by 2025 the cost of servicing the national debt will be twice as high as it was in 2021.

It is not profitable for the Ministry of Finance to place OFZ now. He will pull until the yield drops. Nikita Maslennikov calls 8-9% as the limit at which it is possible to place state papers.

However, when the state enters the market, private companies will be forced to pay increased interest on their securities, or they will have to abandon the placement. This will have a negative impact on the investment climate.

Real economy, budget deficit and inflation

Against the backdrop of numerous risks this year, sanctions, falling oil and gas revenues, inflation, there is positive news for the Russian government – the Russian real economy is rising quite confidently. This is a plus. The downside is that there are risks of inflation acceleration in the second half of the year, and the budget deficit becomes the most important pro-inflationary factor. So far, it is obvious that inflation of 4% in annual terms will be reached in April already in April. Experts believe that inflation will be above 5%, the only question is how much it will exceed this indicator. If the price increase exceeds 5% and does not stop, it will have a bad effect on investments, which will determine the growth rates not only this year, but also in 2024 and 2025.

If the government manages to turn on the "investment engine", especially for private investment, then the deficit of 3% is not terrible. Otherwise, 2024 will go under the tail of the beloved pet by many.

But in March, it will not become less, if only for the first 8 days another 720 billion went into the negative. It seems that only the government believes that the budget deficit will not go beyond the planned one. Few in the expert community share this optimism. Yes, in real terms, expenditures have decreased by 10% compared to last year, but the risks of budget expenditures going beyond the planned are high, and the budget deficit is unlikely to be "short-term". Economists are divided on only one thing – how much more will the excess be, 2.5 – 3% of GDP instead of the planned 2 or significantly more?

- Last year we passed the top of the price bar that could only be thought up, and with very good volumes, we even managed to increase the volume of exports of oil and petroleum products. The pipe deliveries were quite good, especially in the first part of the year. Already now we understand that with such a combination of factors, we will most likely not pass the top of the price bar, we will fall below, and most importantly, we are going lower in volume, - Vyacheslav Kulagin believes.

- We will have to climb more into the pot, which has already lost so much weight due to the fact that it has already been actively climbed into and about 300 billion is frozen. And borrow more, which has two disadvantages: since the Western capital market is closed, and Western investors have left the Russian market, borrowing is becoming more and more expensive, respectively, future debt servicing will also be more and more expensive. Already, according to official estimates of the same Ministry of Finance, by 2025 the cost of servicing the national debt will be twice as high as it was in 2021.

If the government manages to turn on the "investment engine", especially for private investment, then the deficit of 3% is not terrible. Otherwise, the year 2024 will go under the tail of the beloved pet by many.

Elena Petrova, Natalia Seibil