16 Jun 2022 17:28

New fiscal rule could be implemented in 2025, following transition period - Siluanov

ST. PETERSBURG. June 16 (Interfax) - The Russian finance Ministry is reconfiguring its fiscal rules with a two-year transition period and full implementation in 2025, Finance Minister Anton Siluanov said during the St. Petersburg International Economic Forum.

"We want to have a transition period of course, it would be difficult to switch immediately to the rules we are proposing. So in the Finance Ministry's proposals we are providing for two-year transition period, until 2025," he told reporters.

"Budget expenditures and costs have increased lately, we already have several trillion plus. We finance these expenditures by attracting funds from the NWF and with oil and gas revenues. This cannot go on forever so we need a gradual transition to these budget principles, which we planned at the proposal of the Finance Ministry in 2025. In order for the next three-year period of 2023-2025 to be planned taking into account fiscal rules, in 2025 there will be a transition to fully fledged rules, and in 2023-2024 a gradually softer budget policy. This will be expressed in trillions of rubles, which will go towards budget spending," he said.

He said the government had yet to review the Finance Ministry's proposals.

Export, quasi-spending

The general principles of the fiscal rule are the same. "The logic is to determine the amount of spending, which is based on moderately realistic oil and gas revenues," Siluanov said.

To this end, the ministry proposes to include another parameter in determining oil and gas revenues - volumes of hydrocarbon production and export. "If earlier there was a cut-off price as a condition for generating oil and gas revenues, then now, in addition to the price of oil, the volumes of oil and gas supplies are important - we have made budget revenues dependent not only on price, but also on various options for the volume of production and export of hydrocarbons. And we propose an average figure, which, we believe, will be in the no-risk zone for the budget, to calculate the fiscal rule. This will be the first innovation," he said.

In addition, he said the Finance Ministry proposed to "include quasi-expenditures in the spending limit, defined by the fiscal rule as non-oil and gas plus oil and gas. These are what we today spend below that limit, in the form of budget loans, but in fact, these are expenses." He said this is necessary so that there is "no temptation to increase quasi-budgetary operations, which are in effect pure expenditures." "It is proposed to include these in the budget commitments limit, which will be determined by the fiscal rule," he said.

Commenting on whether the new configuration would ensure more or less spending on oil and gas revenues, Siluanov said that "during the transition period, we will definitely spend more, as we see it, and upon the implementation of the fiscal rule from 2025, this will be no lower than the average value for previous periods."

Asked what volume of exports can be provided for in the fiscal rule, Siluanov said the ministry had done the reckoning based on various conditions.

Saving the NWF

He also said that in the MinFin's opinion, the norm regarding the minimum level of the National Wealth Fund, above which the fund's money can be used for investment, should be preserved. He said earlier it was 7% of GDP, then it was raised to 10%, but this norm was suspended this year. In the future, in his opinion, it is necessary to establish a minimum level for the fund, which should big enough to "weather a three-year drop in oil prices."

The NWF might be used up quickly without such a restriction. "This year we can use about 3-4 trillion rubles of NWF money to cover the deficit, and we have also made decisions to finance investment projects from the NWF, about 5 trillion rubles, and in total 11 trillion rubles in the NWF," Siluanov said.

Rubles, yuan

Regarding the opportunities for saving oil and gas revenues in the future, Siluanov said that in subsequent years it would be possible to save in rubles. "For fiscal sustainability we don't necessarily need to have foreign currency [in the NWf structure]. Yes, foreign currency was great in that it influenced the exchange rate, and (...) when prices fell, when the exchange rate weakened, and our NWF reserves grew, our reserves became even larger, there was a counter-cycle here too."

"Today we are spending the NWF, we are spending rubles, the Central Bank is issuing these funds, just the same in conditions where dollars and euros are not available, and even if one day it opens up there's no certainty we will be able to save something in them, because this is already a risky asset, then at the present stage it is quite possible to do it in rubles," he said.

Ruble assets do not of course react counter-cyclically in the same way as the dollar and the euro. "Nevertheless, we are obliged to [pursue] a counter-cyclical budgetary policy, because about 40% of federal budget revenues come from oil and gas. So saving in rubles is also an option," Siluanov said.

In addition, in the future, it is also possible to think about saving in yuan, "since we already have a significant part of our gold and foreign exchange reserves in yuan." "In subsequent years, we can think about keeping savings in yuan assets when implementing the fiscal rule," Siluanov said.

"Trade will now be geared more to the east. Where are those countries' reserves kept? In highly liquid assets, which used to be the dollar and the euro, but since this is not now accessible right now, and we are focusing more on the Chinese markets, then it seems to me that there is a logic to having reserves in the currency of the country with which we trade," he said.