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Federal budget printed 2.3% of GDP deficit


In July, the monthly federal budget printed a deficit of 2.3% of GDP (vs. 0.3% in June), according to MinFin. This was the second monthly deficit this year. The YTD budget surplus narrowed to just 0.6% of GDP, while the annual growth in revenues and expenditures kept improving and reached 2.5% and 16.6%, respectively. The key driver of the growth in revenues was the 5.6% YoY increase in oil and gas revenues, while non oil and gas revenues contracted slightly compared with July 2012.

MinFin’s outstanding deposits in banks added RUB 39.7bn last month. The overall balance of MinFin’s accounts with the CBR remained almost unchanged, increasing only RUB 1.9bn

We highlight several key points in the report on the federal budget execution last month.

In July, the annual growth in budget expenditures accelerated to almost 17%, bringing the 7mo13 growth to 2.7% YoY. Given the planned volume of spending, we expect the growth in fiscal expenditures in 2H13 to be faster than in 1H13, at 7–8% YoY (on average) vs. almost zero. Hence, the fiscal impulse from June-July will likely support growth in 3Q13, but is unlikely to be long-lasting.

The discouraging outcome of the collection of non oil and gas revenues is the main challenge for the key parameters of the FY13-15 budget. To recap, the main drag on budget non-oil and gas revenues this year is higher VAT repayments for public companies following high capex in previous years.

The combined effect of federal government operations on liquidity was visibly positive in July (but smaller than a month ago) mainly on heavy budget spending and a net increase in the volume of funds placed on banks’ deposits, despite a moderately negative monthly balance of domestic borrowing.

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 (operations are to kick off in late August).

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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