Russian Budget: Medium-term Budget Plan: Policy to Stay, Only Numbers to Change

In September, the government submitted the 2022-2024 rolling budget to the Duma along with the estimate of the budget execution in 2021 and the medium-term economic outlook. The government was usually very conservative in its estimates and frequently drafted the budget with a deficit, but the outcome tended to be different – the projected deficit was often much smaller, sometimes turning into surplus. Still the government continued to borrow on the local market in line with the initial borrowing plans, i. e. well above its needs. The federal budget expenditures regularly increased almost every year, as revenues usually exceeded expectations. Hence a massive spending spree almost every year in November – December. An uneven allocation of budget funds has always been inflationary.

In 2021, the situation is no different as the government collected 95.5% of its 2021 plan just in 9M21, prompting to revise the revenue expectations for the full year, but not sufficiently enough. The 2021 expenditures will be also much higher than stipulated and inflation is to remain elevated due to a massive spending spree at year-end.

As the current version of the draft 2022 budget is based on “underestimated” 2021 numbers, the history will repeat itself next year – revenues are likely to be higher that will encourage the government to raise expenditures at year-end again. Unnecessary domestic borrowing to continue amid surplus budget. Déjà vu all over again.

--- The 2021 federal budget assumed a nearly R2.8 trln deficit, while in 9M21 it posted a surplus above R1.4 trln. In September alone, the surplus reached R367 bln. The government collected 95.5% of the 2021 budget plan just in 9M21. It initially planned to collect nearly R18.8 trln in total revenues this year but the total 9M21 revenues already exceeded R17.9 trln.

--- As the federal budget revenues significantly exceeded expectations, the government amend the 2021 expenditures to around R24.0 trln, which is well above the initial spending plan (R21.5 trln). 

--- The federal budget should spend R7.5 trln in 4Q21. As the Ministry of Finance allocated around R16.5 trln in 9M21, the 4Q21 spending target looks too high – it will significantly exceed the average monthly level seen in the previous quarters and will keep inflation high.

--- Despite a massive budget surplus, the government continued to borrow on the domestic market according to the initial plan. It raised over R1.7 trln in net terms in 9M21. Borrowing money at a high cost well above the needed amount amid a surplus budget and building up debt looks quite distortive for the market (both the FX and the ruble segments).

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