In June, the federal budget remained in surplus with a 2.9% of GDP print, or RUB 173bn, following the months of a 5.9% of GDP surplus, bringing the first half balance higher into the black (+1.9% of GDP), according to the Ministry of Finance.
After a spike in May, annual gains in both major budget lines (revenues and spending) normalised to 8.3% and 10.2%, respectively, last month.
Non-oil and gas revenues added a mere 4.3% YoY to RUB 682.8bn, while the annual gain in oil and gas revenues added 13.7% YoY to RUB 555bn. Meanwhile, last month, MinFin’s outstanding deposits at banks were down modestly RUB 22bn.
After a sharp surplus in May (due to technical support), the start of the summer brought normalisation. Now, on the revenue side we see a double-digit growth pace in the oil and gas part only (that is expected, given the 14% advance in the RUB-denominated Urals price), while non-oil and gas receipts decelerated to 4% YoY. Looking into 2H14, given the late June amendments to the budget law, budget inflows are set to rise 5.3% YoY (vs. 13.8% YoY in 1H14) on the back of a 10% gain in the oil and gas component, despite stagnation in the rest.
As for expenditures, the slowdown in the YoY pace throughout 1H14 could well continue later this year and dip into the negative area, with the likely consequent contractionary impulse to the economy.
On the liquidity side, the smaller (but still noticeable) budget surplus, in combination with a decrease in MinFin deposits with the banking system (that will likely be a one-off, rather than the beginning of a withdrawal strategy) and positive net domestic borrowings, was negative for liquidity. We still expect the budget to stay neutral-to-positive for liquidity in the near term.
Vladimir Kolychev, Daria Isakova
VTB Capital analyst