Tax revenue collection remained strong in April (10.1% YoY and 12.5% YTD vs. 4.5% YoY for the year in the budget plan) helped by soaring oil & gas tax inflows (up 18.2% YoY, 20.6% YTD) on higher than expected oil prices and weaker RUB. Mirroring the bleaker economic backdrop, the growth in non-oil & gas tax receipts continued to slow (+1.4% YoY in April) after a fairly resilient 1Q14 (+5.8% YoY) that was propped up by the one-off transfer of undisbursed subsidies from regional budgets.
Meanwhile, the pick-up in budget spending growth to a whopping 26% YoY in April (10.8% YTD) was the main surprise of the report. Component-wise, it was broad-based across different spending lines, with social policy (+30.2% YoY) and inter-budgetary transfers (+100%) among the largest contributors (they added 8.3pp and 4.2pp, respectively, to the headline increase). Assuming the Budget Rule remains intact, we believe this spike in expenditures mainly reflects MinFin’s efforts to smooth out seasonality. Therefore, spending growth is to slow substantially to comply with the projected 4.5% annual increase in 2014, implying a contractionary impact of fiscal policy over the reminder of the year.
A combination of the budget deficit, an increase in MinFin’s deposits with the banking system and low domestic borrowings was favourable for liquidity and we think the budget will remain neutral-to-positive for liquidity over the next 6 months.