7 Jun 2022 17:11

Russia's budget rules need to be adjusted, govt ministers must submit new structure by end of July - Putin

MOSCOW. June 7 (Interfax) - Russia's budget rules need to be adjusted in order to assist in boosting the growth rate of the economy, and the government must submit a new structure by the end of July, President Vladimir Putin said at a meeting on economic issues on Tuesday.

"Work has already begun on the federal budget for the next three years. An important fundamental issue here is the structure of the budget rules that must ensure not only the stability of government finances, but also assist in boosting the growth rate of the Russian economy. Obviously, flexible approaches and adjustments are required here. I ask the government to submit proposals on a new structure of the budget rules by the end of July," Putin said at the meeting.

Fiscal rules, which have been suspended this year as tough anti-Russian sanctions have been imposed, will not return in their previous form: the Finance Ministry has drafted new proposal, Finance Minister Anton Siluanov told reporters at the end of April.

"As the Finance Ministry, we want the budget to be formed on principles and rules that are comprehensible to all. In current conditions, the old rules cannot of course be implemented, so the Finance Ministry has come up with proposals for new fiscal rules, so that under all restrictions, the principle would be as follows - revenues, including oil and gas, based on a certain level that would react least of all to changes in production volumes, prices - essentially, like the current fiscal rules - and on this basis we'd be able to forecast stable budget commitments. This is because apart from revenues, the National Wealth Fund will be a key source of financing budget expenditure in the near future," Siluanov said.

There will have to be limits on spending so that the NWF is not depleted, he said.

"The bulk of the revenue is 'mobile' and is oil and gas. Our job is to determine this volume of oil and gas revenue in such a way as to depend as little as possible on external conditions - what we had before, only now we want to modify it. Maybe not tied to the cut-off price, the baseline price [for oil] but perhaps to some fixed amount," he said.

"Here we can either follow the old logic, take a certain baseline cut-off level, $44-45 [per barrel] or simply set a certain forecast amount that would be based on data for the last three years. An average volume of oil and gas revenues. To minimize the impact of volatility, both in production volume and in prices and exchange rates," he said.

The MinFin will propose to draft a budget for a new three-year cycle "already according to adjusted principles," Siluanov said.

The new fiscal rule configuration will assume that the NWF is topped up not in foreign currency but in rubles, he said.

In 2022, Russia returned to full implementation of the fiscal rules after their partial suspension in 2020-2021. As far back as February 17, Russian President Vladimir Putin said that the rules should be abided by in order to ensure a balance of public finances and the stability of key macroeconomic indicators. "This year and all subsequent planning periods, we will strictly follow the budget rule, we have no disagreements here in the government," he said.

As early as March, certain provisions of the fiscal rules related to the use of additional oil and gas revenues of the federal budget were suspended for 2022. As such, the Finance Ministry has not been buying foreign currency and gold since March.

Amendments to the Budget Code were also adopted, under which additional oil and gas revenues in 2022 cannot be credited in full to the National Wealth Fund, but rather allocated to replace government borrowings, to perform public regulatory obligations, to repay public debt, as well as provide financial support to other priority activities as decided by the Russian government.