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Federal budget – economic downturn finally pushes non-oil and gas revenues into the red in July


In July, the federal budget slid into the red, with a 0.7% of GDP deficit (RUB 43bn), following the two months of visible surplus, bringing the seven month balance slightly lower, to 1.7% of GDP, according to the Ministry of Finance.

Meanwhile, annual gains in both major budget lines (revenues and spending) continued descending and slowed to 5.7% and 2.1%, respectively, last month.

Annual growth in non-oil and gas revenues plunged into the red (down 2.3% to RUB 523.5bn) for the first time since March, while the annual gain in oil and gas revenues was resilient, at 13.8% YoY (RUB 610bn). Meanwhile, last month, MinFin’s outstanding deposits at banks built-up modestly RUB 37bn.

It is seen in the headline revenue numbers that economic slowdown has weighed on the fiscal receipts, as growth in non-oil and gas revenues slid into the contraction. No details are yet available on this, though our base case suggests that amid general stagnation (and even technical recession in 2H14) non-oil and gas budget incomes will likely continue to follow the broad economic trend (given the FY14 plan, in August-December, their average pace is to be 0.9% YoY).

That said, a steadily heavy gain in oil and gas taxes and export duties came as a little surprise – albeit August might be somehow weaker, given a resilient rouble and downward movements in oil prices.

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 top of other impediments to growth.

On the liquidity side, the most noticeable thing is that MinFin has been expanding the volume of cash on its accounts, which contrasts with its previously announced commitment to smooth seasonality. Yet on a beneficial front, the ministry will be able to pump liquidity during the rest of the year when liquidity conditions are usually worsening. In July, the modest budget deficit and the increase in MinFin deposits with the banking system compensated over and above positive net domestic borrowings, making the total effect on liquidity slightly positive. We still expect the budget to stay neutral-to-positive for liquidity in the near term
Vladimir Kolychev, Daria Isakova
VTB Capital analyst


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