Russia could have deficit of up to 5% of GDP, borrow about 5 trln rubles in 2020 - Kolychev
MOSCOW. July 3 (Interfax) - Russia's federal budget deficit could be around 5% of GDP in 2020 with 100% implementation of the anti-crisis package, and spending is expected to total about 23 trillion rubles, Deputy Finance Minister Vladimir Kolychev said.
However, as practice in recent years shows, expenses are not fully implemented, so the deficit could be smaller, he said.
"Overall, according to the budget figures, if the anti-crisis package is fully implemented, meaning the full utilization of all measures provided at 100% - and some measures are more popular than others, some less so, thus the 'average for the hospital' will probably not be like this - that is, if the approved expenses are fully applied at the current level of oil prices at an average of $39 per barrel for the year, then the total deficit could be about 5%. Perhaps it will be less," the deputy minister said.
"As we know, not all approved expenses are always used, some of them are transferred for objective reasons (contractual obligations). But we, naturally, are impressing upon all agencies that this very year, when private demand is slumping, government demand, especially what has been approved in the budget, should be used fully to support the economy," Kolychev said.
"Furthermore, based on the actual dynamics of non-oil and gas revenues, and on the operating indicators of economic activity, we can say that the situation is still developing better than that what is factored into the current projections of macro-indicators. Therefore, 5% of GDP is likely the upper limit of the estimated range of the federal budget deficit," he said, noting that such underutilized funds amounted to 1 trillion rubles in 2019.
The Central Bank of Russia (CBR) forecasts a budget deficit of 5%-6% of GDP for 2020.
Speaking about planned budget expenditures this year, Kolychev recalled that the budget law now provides for spending of 19.7 trillion rubles. Taking into account 960 billion rubles in expenditures transferred from last year and the cost of the anti-crisis package, spending will total an estimated 23 trillion rubles.
Earlier, Prime Minister Mikhail Mishustin said that amendments to the Budget Code are being considered that would allow increasing expenditures by 1.8 trillion rubles in the current year. However, there is a possibility that not all expenditures will be carried out. "Probably, as usual, a part of the approved expenses will be underutilized. And perhaps the figure will still be smaller. It's hard to say by how much. In the previous year, about 1 trillion rubles in approved spending was not carried out. This year it may be less," Kolychev said.
The impact of the quarantine on non-oil and gas revenues in 2021 could amount to over 1 trillion rubles, the Finance Ministry estimated. However, the real trajectory of revenues is currently better then what was planned, based on the macro-forecast parameters, Kolychev said.
He said that the anti-crisis package overall is estimated at about 4 trillion rubles of direct additional budget expenditures. It calls for spending about 450 billion rubles to support the healthcare system and the sanitary and epidemiological control system; over 800 billion rubles to bolster the incomes of the population; about 2 trillion rubles to support the most affected sectors of the economy; and 700 billion-800 billion rubles to support federal constituent entities and the budgets of governmental extra-budgetary funds. This will be financed from the CBR's profit from the sale of shares in Sberbank , the redistribution of budget allocations within the budget and borrowing.
"In terms of the structure of funding for this anti-crisis package, it consists of three parts. The first part consists of one-off revenue. The revenue associated with the transfer of profits from the purchase of Sberbank shares to the NWF is 1.1 trillion rubles. The second part is a reallocation. We found reserves within the budget, roughly, about 1 trillion rubles. The third is additional borrowing; this accounts for the remaining part," Kolychev said.
Overall, he said, Russia's borrowing in 2020 will amount to 5 trillion rubles, and 1 trillion rubles will be repaid. In 2021, borrowing will also be higher than originally planned, at about 1.7 billion-1.8 trillion rubles net or 2.7 trillion rubles gross.
"The amount of non-oil and gas revenues is likely to be lower than we originally planned, and now we're discussing the issue that this gap will be partially covered by borrowing, but I'm not prepared to say at the moment what that amount will be. That's closer to September, when the macro forecast parameters are finalized and, accordingly, their impact on oil and gas revenues becomes clear. But it will certainly be much less than 5 trillion rubles," Kolychev said.
Speaking about the decision to finance the anticrisis package with borrowing instead of with money from the National Welfare Fund (NWF), Kolychev said that during a cyclical downturn demand for credit from the private sector is weak, there is more of a demand for debt restructuring than for credit to expand businesses.
"This is why it's more comfortable for banks to not assume additional credit risk, but take on sovereign risk. This also does not have a major impact on interest rates in the economy directly in this period, when the cyclical contraction is happening," Kolychev said.
"In the second quarter, we placed completely different amounts compared to the first. In the first, the gross placement on the domestic market amounted to about 0.5 trillion, in the second it was already 1.2 [trillion rubles]. Despite the high supply for the second quarter, we saw that interest rates, both for OFZ [federal bonds] and in the economy on average at the long end of the curve, meaning specifically those that are important for the economy, are decreasing," Kolychev said.
Using the NWF in this case would have been a violation of the fiscal rule that would have affected the economy, he said. "If we spend more of the NWF, accordingly, it will be necessary to convert this NWF [money], due to which the currency will depend on such administrative decisions. As you know, the mechanism of transactions on the open market is tightly linked to the dynamic of oil prices and this is what offsets the impact of the oil price dynamic on exchange rates and further on along the whole chain - on inflation, interest rates in the economy," Kolychev said, adding that it would be unwise to sacrifice this at a time when it is possible to borrow more.
The deficit will be financed primarily with borrowing and only a negligible amount of NWF resources will be used for this purpose.
"The use of NWF funds with such an oil price forecast will be relatively small; at the start of the year we saved, in the second quarter we used, when oil prices slumped dramatically, and this also helped to stabilize the currency. In total for the year with such an oil price forecast it means that about 250 billion-300 billion rubles of the NWF will be used," Kolychev said.
The liquid part of the NWF will amount to about 7% of GDP, or 7 trillion rubles at the end of 2020.