ALEXANDER DERYUGIN COMMENTED ON THE CONCEPT OF A NEW BUDGET RULE
According to Vedomosti, the updated concept of the budget rule by the Ministry of Finance assumes a cut-off oil price of $60 per barrel and its production at 9.5 million barrels per day. According to Alexander Deryugin, Researcher of the Budget Policy Department at the Gaidar Institute, some of the treasury spending will most likely have to be abandoned when the budget rule is restarted, but the currency purchases will have a positive impact on the ruble and will partially compensate for the sterilization of excess revenues.
The Finance Ministry proposed a modification of the budget rule, that is, a cut-off price of $60 per barrel of oil while fixing oil production at 9.5mn bpd. The agency's updated concept of the budget rule would weaken the exchange rate by Rb10-20. However, according to a representative of the Ministry of Finance and the Ministry of Economic Development press office, the updated design of the budget rule is being discussed by the government, but it is still premature to talk about specific decisions. Previously, the mechanism of the budget rule had other parameters: a cut-off price of $40 per barrel with an annual indexation of 2% from 2018 and a production forecast of about 10.5 mn bpd.
The budget rule had to be suspended, firstly, in order to use the entire amount of oil and gas budget revenues and not just the basic ones to finance expenditure, and secondly, because of the physical impossibility of buying foreign currency for additional revenues due to sanctions. The forecast values of budget revenues and expenditures this year and in 2023-2025, presented by the Ministry of Finance in the draft guidelines, will in any case be in "online mode" adapted to the changing external conditions, Alexander Deryugin believes.
“Theoretically speaking, if the budget rule will be launched tomorrow in the parameters proposed by the agency, part of the treasury expenditures will probably have to be abandoned, he suggested. On the other hand, the currency purchases will have a positive impact on the ruble exchange rate, which will partially compensate for the sterilization of excess incomes from the economy, said Alexander Deryugin. Based on preliminary projections, the Ministry of Finance has not budgeted a very risky a deficit of around 1% of GDP for the next few years, the expert reminded. Taking into account the withdrawal of excess revenues, more external resources will have to be sought to finance it, but the Ministry of Finance will be able to attract the required amounts without much difficulty by issuing government debt inside the country, the economist concluded.