January’s huge monthly surplus was a one-off and could be balanced by a tangible deficit as early as in February, we believe. First, the weaker rouble was highly beneficial for oil & gas revenues (RUB-denominated Urals jumped 7% YoY). Second, the major drags on spending were defence (behind 11.4pp of the total YoY decline in budget outlays) and pensions (-13.5pp). So, this was not a broad-based shrinkage and thus not that dramatic for economic growth as at first glance. We believe there were some technical/administrative delays and that MinFin is likely to catch up on these spending items as early as this month, then stick with its path of executing the budget more evenly (which the ministry followed in 2012-13). Third, the strong growth in non-oil and gas revenues was a story of obscurities amid the sluggish economy. To a certain extent it could be linked to the favourable base effect (VAT refunds ate a lot into fiscal income in early 2013), but obviously not sustained in the near term as companies’ margins stay under pressure.
On the liquidity front, MinFin’s combined operations were heavily negative last month, despite its expanding deposits in the banking system, on a large monthly surplus, FX revaluation and the usual (for January) increase of the federal government’s financial resources owing to autonomous and budgetary enterprises. Looking further, the daily CBR data on MinFin's account for 1-6 February hints at a reversal in the liquidity effect this month.