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Government approves ‘budget rule’


Yesterday at SPIEF 2012, Finance Minister Anton Siluanov commented that the government has agreed to MinFin’s ‘budget rule’. The base Urals price is to be set as a ten-year average as of 2018, presumably at USD 94/bbl. Between now and 2018, MinFin will extend the averaging period by a year from five years in 2013 to ten years in 2018 (ie, for 2013, it should be calculated as the 2007- 2011 average, for 2014 – as the 2007-2012 average, and so on). The forecast for 2013-14 oil prices remains unchanged at USD 97/bbl and USD 101/bbl, respectively. However, as they are below the base oil in the ‘budget rule,’ conditional expenditures will be excluded. At the same time, government spending for the next couple of years that has already been set will be implemented as planned.

In 2013-14, the ‘budget rule’ is unlikely to considerably influence federal budget expenditures (the latter may decrease only marginally, declining 0.05% of GDP in 2013, and 0.16% of GDP in 2014 owing to the elimination of conditional expenditures). Hence, if the Urals price is below USD 97/bbl on average next year, the government will likely tap the Reserve Fund. If the Urals price is on average above USD 97/bbl in 2013, extra revenues will be used to increase the Reserve Fund, and when its volume exceeds 7% of GDP, the National Welfare Fund. Once this rule is implemented (it also requires the approval of the Duma and the President), it will likely improve the effectiveness of fiscal policy, as we believe the ‘budget rule’ will increase the long-term sustainability of the fiscal system and decrease the volatility of economic growth in the long term, as it will make budget expenditures less dependent on the economic cycle and fluctuations in oil prices.

Alexey Moiseev, Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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