Yesterday, Minister of Finance Anton Siluanov noted that the FY14 federal budget deficit might be revised upwards from the currently planned 0.2% of GDP. The underlying cause is the new macro forecast for 2014-16 (lower GDP and imports growth coupled with stronger RUB than in the previous version) which implies budget revenues (both oil & gas and non-oil & gas) being some RUB 650bn lower in total.
Siluanov added that lower revenues did not link to narrower expenditures, but that there was a possibility of conditional expenditures (around RUB 350bn for 2014) being cut, thereby limiting next year’s increase in the federal budget deficit.
The minister also mentioned that the state-run programme on rearmament might be postponed 2-4 years.
Once adopted, such amendments (particularly cutting conditional expenditures and postponing the spending on military reform) would lead to a decrease in the planned FY14 outlays, from RUB 14.2tn to at least RUB 13.9tn. Hence, the growth in fiscal spending might stay flat next year at around 3-4% YoY, thereby meaning no positive impact on the fiscal side on growth and inflation over the next year and a half (previously the growth in fiscal spending was expected to rebound to 6% YoY in 2014).
It is also important that the overall economic slowdown will likely limit not only federal budget revenues, but also regional ones (we have already noticed a decline in the revenues growth of regional budgets, to 0.1% YoY in 1Q13 from 5.8% YoY in 1Q12). Consequently, in 2014 this could well drag on the expansion of regional expenditures, which is now increasing more actively than federal spending (6.5% YoY vs. 4.3% YoY in 1Q13).
The absence of additional revenues is essentially leading to part of expenditures being postponed: this time, spending on the rearmament programme.
All in all, more meagre budget revenues and, therefore, slower growth in fiscal spending, will not support growth but will also not lead to inflation accelerating.