Yesterday, MinFin published its Guidance on Budgetary Policy for 2013- 15 based on President Putin’s decree as of 7 May 2012, Strategy 2020, and Putin’s budget address delivered late June.
‘Budget rule’ to be implemented as of 2013. The base Urals price is to be set as a ten-year average as of 2018.
Pension reform to be finalised not later than this September. Should ensure lower burden on the budget and the Pension Fund turning into a selfsufficient system. Currently, MinFin estimates the volume of a transfer to the Pension Fund at 4.7-3.9% of GDP in 2012-15.
‘Borrow and save’ scheme to be continued. MinFin plans net borrowings at RUB 0.7-1.4tn in 2012-15, which is lower than was stated in the guidance in the Government Borrowing Policy for 2012-14 (around RUB 1.6tn for each year in 2012-14). The Reserve Fund is to accumulate around RUB 0.6-1tn in 2012-15.
Budget to become more counter-cyclical. The document implies that MinFin intends to improve LT fiscal sustainability (with declining balancing oil price – please review the table below).
Russian ‘fiscal cliff’? Budget expenditures are expected to add just 5% in nominal terms next year (vs. 15% in 2012) pointing to negative contribution to GDP growth. As the economy is running above potential, a slowdown of fiscal spending growth is a good thing. It also means that if the economy slows down, Russia has room for fiscal stimulus.
Military reform is still a priority, while infrastructure spending is not. With fiscal spending on national defence and security at 6.1-6.6% of GDP, expenditures on military pensions at 0.6-0.8% of GDP and on military salaries at 1.9-2.5% of GDP in 2012-15. Unfortunately, investment spending is expected to contract as a percentage of GDP (“National economy and state functioning” to decline from 4.3% in 2012 to 3.1% in 2015) under our base-case scenario, which is a concern, as it raises questions on funding sources for the planned increase of investment/GDP ratio to 25% by 2015.