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Federal budget surplus at 1.0% of GDP in 1H13


In June, the monthly federal budget printed a surplus of 2.1% of GDP, smoothing from 3.7% in May, according to MinFin. The YTD budget surplus amounted to 1.0% of GDP, while the YoY expansion of revenues and expenditures recovered from the exceptional decline in May to 1.9% and 10.6%, respectively. Oil and gas revenues were down 9.3% YoY, while the key driver of growth in revenues was the 12.3% YoY increase in non oil and gas items.

MinFin’s outstanding deposits in banks added RUB 234bn last month. The overall balance of MinFin’s accounts with the CBR was up RUB 263bn in June, mainly due to FX revaluation.

The report on the federal budget execution signals three main things.

During 1H13, the annual growth in budget expenditures almost stalled in nominal terms, adding just 0.3%, compared with the 30% growth in 1H12. The negative real growth pace in the federal government spending so far this year was a hurdle for GDP expansion (we expect real GDP YoY growth at below 2.0% in 1H13, vs. almost 5% YoY in 1H12).

Even though non oil and gas revenues almost doubled MoM in June, this is not encouraging as it is a seasonal pattern for the last month in 2Q13. The lower non oil and gas revenues (than planned in the federal budget for 2013-15) are the main challenge for the key parameters of the FY13-15 budget. The key drag on budget non-oil and gas revenues this year is higher VAT repayments for public companies.

Despite the monthly surplus in June, the combined effect of federal government operations on liquidity was visibly positive on a sharp increase in the volume of funds placed on banks’ deposits (+RUB 324bn; almost double that at the end of May). The latter meant that money market rates ticked down in June.

Under our base case scenario, we expect the FY13 federal budget deficit at 0.5% of GDP and the transfer to the Reserve Fund at RUB 65bn.

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

GDP, oil, gas, ruble, CBR, FX market

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