Temporary budget rule from 1 February. Budget rule: definition and meaning. The meaning of economic strategy

MOSCOW, July 14 - RIA Novosti. The State Duma at a plenary session on Friday adopted in the second reading a government bill on a new design of the budget rule and on the merger of the National Welfare Fund (NWF) and the Reserve Fund on the basis of the NWF.

budget rule

The cut-off bar for the price of Urals oil in the updated budget rule is set at $40 per barrel. Oil and gas revenues received at a price above this bar will be directed to reserves.

The draft law defines the maximum volume of federal budget expenditures, which cannot exceed the amount of oil and gas revenues calculated on the basis of base price for oil, the base export price for natural gas and projected exchange rate, non-oil and gas revenues, as well as public debt servicing costs. The base price for Urals oil is set at $40 per barrel in 2017 prices and is subject to annual indexation by 2% starting from 2018.

FNB + Reserve Fund

In the second reading, amendments were made to the draft law on the merger of sovereign funds of the Russian Federation on the basis of the National Welfare Fund. Deputy Finance Minister Vladimir Kolychev explained that such a merger is expected in conditions where the Reserve Fund is predicted to run out against the backdrop of oil prices that have fallen significantly over the past two or three years.

At the same time, the target component of this fund remains the same as the goals of the previous two funds: financing aimed at balancing the insurance pension system, financing the federal budget deficit and co-financing voluntary pension savings. It is supposed to form a joint fund at the expense of additional oil and gas revenues.

If the total amount of funds in the pooled fund exceeds 5% of GDP, it is proposed to limit its use to falling oil and gas revenues, if the total amount of funds is less than 5%, then limit this amount to 1% of GDP.

The amendments provide that the funds of the Reserve Fund are credited to the NWF (combined fund) no later than February 1, 2018. The Ministry of Finance will monthly publish information on the value of the assets of the National Welfare Fund at the beginning of the reporting month, the transfer of funds to the specified fund, their placement and use in the reporting month.

According to the approved amendments, until the amount of the NWF funds placed with the Bank of Russia at the end of the next financial year and (or) the first and (or) second years of the planning period reaches 7% of the forecast volume of GDP, the placement of the NWF funds in other financial assets is not allowed, for except for the financing of self-sustaining infrastructure projects started before January 1, 2018.

The Russian Ministry of Finance announced the day before that it was launching a budget rule, according to which it would start buying and selling foreign currency on the domestic market. Thus, the ruble will become less dependent on oil price fluctuations. However, due to course changes monetary unit The Russian Federation, caused by the upcoming foreign exchange interventions, will be closely monitored by the Bank of Russia. He does not want to return the ruble from free float to regulated soil.

Ministry of Finance: in the interests of exporters and overall stability

The budget rule stipulates that if oil prices exceed $40 per barrel, the Ministry of Finance will buy foreign currency on the market for the entire amount of additional oil and gas revenues received. Purchased dollars and euros will be sent to reserves. If the cost of a barrel of Urals oil falls below 40, the department will start selling foreign currency in the amount corresponding to the shortfall in budget revenues.

“At the same time, the accumulated volume of transactions for the sale of foreign currency cannot exceed the volume of purchases of foreign currency accumulated since the beginning of the operations,” the Ministry of Finance explains. – This decision will also make it possible to ensure that the volume of transactions in the foreign exchange market is equal to the deviation of the actual volume of use (replenishment) of sovereign funds (Reserve Fund and National Welfare Fund) from that provided for by the budget law in 2017. Thus, carrying out transactions in the foreign exchange market will have a generally neutral impact on the state of the money market.”

Initially, it was assumed that the budget rule would be launched after the next three years (2017-19), for which the budget has already been drawn up. However, the situation has changed - the ruble has seriously strengthened at the beginning of the year against the backdrop of rising oil prices. And this, according to Russian authorities does not meet the interests of domestic exporters (oil and gas).

Therefore, the budget rule was launched, as the Ministry of Finance emphasizes, "in order to increase the stability and predictability of domestic economic conditions." Currency purchase and sale operations will begin in February. Moreover, as Minister of Finance Anton Siluanov promised a little earlier, in 2017 all additional revenues from energy exports will go to the budget, and the funds of the Reserve Fund and the National Wealth Fund will begin to save.

Recall that the budget for 2017 provides for spending funds from sovereign funds for a total of 1.8 trillion rubles. The Ministry of Finance had previously planned that the Reserve Fund would be completely exhausted this year. But rising oil prices and the subsequent strengthening of the ruble forced officials to improve their forecast and revise plans.

On a monthly basis, the Ministry of Finance will evaluate the oil and gas revenues that will go to the federal budget. Actual oil and gas prices, export duty rates and the average ruble exchange rate for the reporting month will be taken into account. An estimate of the volume of additional or shortfall in oil and gas revenues, as well as the monthly volume of foreign currency purchase and sale transactions in the Russian market, will be published on the official website of the Ministry of Finance every month before noon Moscow time on the third working day of the current month.

Bloomberg journalists spoke on condition of anonymity with some federal officials and reported that the amount of monthly foreign exchange interventions The Ministry of Finance can reach 1 billion dollars.

Central Bank: first you need to pay off inflation!

All this may mean a departure from the “floating ruble” policy, which the Bank of Russia tried not to do even in a difficult 2015. However, the Central Bank of the Russian Federation considers currency operations in the amount of $50 million per day, insignificant for the Russian market. In general, the regulator approves the policy of interventions and intends to "conclude relevant transactions in the market in the amount and within the timeframe calculated by the Ministry of Finance."

“According to the Bank of Russia, the introduction of “budgetary rules” in the future and their application on an ongoing basis will ensure more stable and predictable internal conditions for development, will help change the structure of the economy in the direction of reducing its dependence on raw materials. “Fiscal rules”, combined with the application of the inflation targeting regime by the Bank of Russia, will stabilize the real exchange rate of the ruble, which will limit its impact on the competitiveness of Russian producers,” the Central Bank said in a comment.

Nevertheless, the Bank of Russia considered it necessary to emphasize the immutability of its approaches to monetary policy. The regulator, as before, will take into account budgetary policy measures when preparing forecasts and making decisions on key rate. At the same time, the Central Bank is confident that the foreign exchange operations of the Ministry of Finance will not interfere with the achievement of the target 4% inflation by the end of 2017.

The fact that reducing inflation is one of the most important tasks of the monetary policy of the financial regulator was emphasized by the first deputy chairman of the Central Bank, Ksenia Yudaeva, in an interview published today with the Izvestia newspaper. She noted that only after reaching the desired 4% per year, the Bank of Russia will return to another important problem - replenishment of gold and foreign exchange reserves up to $500 billion.

“For us, the inflation target is an absolute priority. This is more important than reaching the bar for international reserves,” Yudaeva said.

The goal of increasing state reserves to a confident $500 billion was set by the Central Bank back in 2015. At the moment, their size is 380 billion dollars. AT last time The Central Bank bought foreign currency to replenish reserves in May-July 2015, when it acquired more than $10 billion. In response, the American currency rose from 49 to 62 rubles, while oil then fluctuated in price from 45 to 52.5 dollars per barrel.

Yudaeva recalled that in the December baseline scenario, replenishment of reserves is not provided. Nevertheless, she did not rule out that the Central Bank will make some purchases of foreign currency this year in case of a change in budget policy.

As for the strengthening of the ruble in recent months, the Deputy Chairman of the Bank of Russia considers it "fundamentally justified", since it is caused by the growth of world oil prices.

“Another thing is that fiscal policy measures, which are also a fundamental factor, can smooth out fluctuations in the real exchange rate even in the face of oil price fluctuations,” Yudaeva stressed.

The ruble trembled

In general, the Central Bank of the Russian Federation does not expect speculative pressure on the ruble from the Ministry of Finance's operations in the foreign exchange market. The commentary of the press service of the Bank of Russia, released today, says that there are no prerequisites for this. Firstly, the interventions will be uniform, and secondly, they will be insignificant, based on the assessment of the volume of additional oil and gas revenues in 2017. In short, there is no reason to panic.

The foreign exchange market, however, got nervous last night, after the Ministry of Finance announced the launch of the budget rule. The dollar exchange rate on the Moscow Exchange exceeded the level of 59.5 rubles despite the weakening of the American currency on the world market. The euro exchange rate crept close to the mark of 64 rubles.

Russia's additional oil and gas revenues for the first six months of this year have already amounted to 1.7 trillion rubles, Treasury chief Roman Artyukhin told Izvestia. This is more than half of the projected amount for the whole of 2018. Experts support the desire of the Ministry of Finance to form savings at an accelerated pace: these funds should become a "safety cushion" in case of a new crisis.

Starting this year, Russia has a new budget rule. For all proceeds from the sale of oil at a price of more than $40 per barrel, the Ministry of Finance buys foreign currency and sends it to the National Welfare Fund. It is intended to become a new "airbag" to replace the Reserve Fund spent during the crisis.

This year, the Ministry of Finance expects to replenish the National Welfare Fund with additional oil and gas revenues in the amount of 2.74 trillion rubles. However, already in the first half of the year, proceeds from the sale of oil at a price in excess of $40 per barrel amounted to 1.7 trillion rubles. These funds are accumulated in separate foreign currency accounts, Roman Artyukhin told Izvestia after a joint round table between the Moscow Exchange and the Treasury.

The key result of the implementation of the new budget rule, the Ministry of Finance calls, in particular, the reduction in the sensitivity of exchange rate fluctuations to the dynamics of oil prices.

As a result, at elevated level volatility of oil quotes in 2017-2018 - from $43 to $80 per barrel - fluctuations in the ruble exchange rate against the dollar remained in a relatively narrow range: from 56 to 64 rubles, according to the "Main Directions of the Budget, Tax and Customs Tariff Policy for 2019 year and planning period of 2020 and 2021”, prepared by the Ministry of Finance.

At the same time, if there were no budget rule, then the dollar exchange rate would now be 50 rubles, First Deputy Prime Minister and Finance Minister Anton Siluanov said in June. Now the rate of the American currency keeps around the mark of 62 rubles/$. At the end of May, a similar statement was made by the Minister economic development Maxim Oreshkin. According to him, over the past three years, the government and the Bank of Russia have managed to build such a budgetary and monetary policy that "the price of oil is growing or the price of oil is falling, this did not interfere with exports and the conditions were stable."

However, the head of the Accounts Chamber, Aleksey Kudrin, said that the budget rule could and should be relaxed by $5 - to make the cut-off price not $40, but $45. This, in his opinion, could make it possible not to raise VAT from 18 to 20% from next year. And the volume of additional budget revenues would be comparable to those that the treasury will receive from the increase in value added tax - 600 billion rubles a year.

Russia managed to get more than half of the additional oil and gas revenues planned for this year due to the rather high price of oil, said Alexander Deryugin, director of the Center for Research on Regional Reforms at the RANEPA. According to him, the projected figure of 2.74 trillion rubles is likely to be reached, and possibly even exceeded. At the same time, the expert is sure that it is not necessary to soften the budget rule, since the cost of "black gold" is difficult to predict.

Revenues to the treasury are uneven, so if in the first half of the year Russia earned more additional oil and gas revenues than planned, this does not mean that the dynamics will continue in the second half of the year, said Alexandra Suslina, head of the Fiscal Policy direction of the Economic Expert Group. She stressed that income projections are based on the average oil price and the average dollar exchange rate, which can change throughout the year. According to her, the optimal size of the "airbag" is about 7% of the country's GDP. When this level is reached, the fiscal rule can be relaxed.

7% of Russia's GDP is about 7 trillion rubles. Thus, it turns out that Russia will need to save at a faster pace for another three years. The previous crisis showed that an airbag is necessary. It guarantees the ability to fulfill social obligations to the population in the event of a new economic shock.

The new fiscal rule, which should restore strict approaches to the use of oil and gas revenues from 2020, will base on the price of oil at $40 per barrel and will take into account the cost of servicing the public debt

Finance Minister of the Russian Federation Anton Siluanov (Photo: TASS/Alexander Astafiev)

No primary deficiency

A new fiscal rule – a system of rules for the use of oil and gas revenues – will come into effect from 2020, set the base price of oil at $40 per barrel and will limit budget spending so that it must equal base income minus interest expenses on debt servicing, at the Moscow Financial forum on Friday Minister of Finance Anton Siluanov. “The preparation of the fiscal rule, which we believe is possible for implementation from 2020, will be that at $40 a barrel we should have a zero primary deficit. That is, all those debt service costs that we will be included in the budget expenditures will just amount to the deficit that we can afford,” Siluanov said, an RBC correspondent quoted him as saying.

In other words, under the new budget rule, the Ministry of Finance will calculate oil and gas revenues at a price of $40, add forecast non-oil and gas revenues to them (this amount will be considered basic income) and plan budget expenditures so that they are no higher than basic income, not counting interest payments on debt .

The new version of the fiscal rule will be the fourth since the introduction of such public finance management practices in 2004.

The old budget rule, which was in effect from 2013-2015, meant that marginal budget spending equaled basic income plus 1% of GDP. The new rule will replace this 1% with the amount of interest expense, which is now exactly within 1% of GDP. According to the law on the budget for 2016, interest expenses this year are planned at the level of 646 billion rubles, or 0.8% of GDP. The primary budget deficit (deficit excluding debt service costs) is planned at 2.2% of GDP, and the Ministry of Finance wants no primary deficit from 2020.

Why $40?

Under the old rule, the base price of oil for calculating oil and gas revenues that can be used for financing budget spending, was defined as the average annual price of Urals oil over a five-year period with an annual increase of this period by one year up to ten years (averaging over a ten-year period should have started from the 2018 budget). Surplus profits (oil and gas revenues from the excess of real prices over the base) were transferred to sovereign funds. The rule worked on rising oil prices, but in 2015 the estimated oil price under the budget rule was $96, while the actual price fell to $50. Therefore, the budget rule was suspended for 2016, and instead temporary rules were introduced (valid until February 1, 2017) that allow spending oil and gas revenues and savings from reserve funds to finance federal budget expenditures.

Now it is proposed to use the conservative price of $40 per barrel instead of the average oil price for previous years in the budget rule. Such a price is taken because it corresponds to the threshold of profitability of shale oil production in the world ($40-50), explains a high-ranking federal official familiar with the plans of the Ministry of Finance. According to him, soon the department wants to submit a legislative initiative to the new Duma in order to introduce a budget rule from 2020. A representative of the Ministry of Economic Development told RBC that the document had not been received by the ministry.

The average price of Urals in January-August 2016 was $39.36 per barrel, and in August it exceeded $40 per barrel ($43.9). If the new budget rule were in force now, the reserve fund could be replenished in August.

The issue of the cut-off price - $40 or closer to $50 - has yet to be discussed in the government, a federal official tells RBC. The Ministry of Finance proposes to annually index it for dollar inflation (in 2014 it was 1.6%, but in 2015 it was only 0.1%), a source close to the Ministry of Finance told RBC earlier. In general, the fall in oil prices and volatility in the foreign exchange market forced the Ministry of Finance to take a different look at the purpose of the budget rule. Its meaning should be broader than just an opportunity to stabilize state finances, the task is to “isolate the economy from the volatility of oil prices,” says a source in the financial and economic bloc of the government. We are talking about “so that the real effective exchange rate of the ruble does not fluctuate so much along with oil prices and relative prices in the economy, inflation, exchange rate conditions and everything that affects the profitability of companies in different sectors do not fluctuate so much.”

“We are guided by the fact that our budget deficit should gradually decrease by one percentage point annually. If we choose $40 as the cut-off price, then we come to a balanced budget by 2020; if we choose $50, we come to 2019. Depending on what the cut-off price will be, the moment will be determined when the budget rule will work fully, ”says an official from the financial and economic bloc.

The budget rule is, perhaps, the only working mechanism that has proven itself in international experience to reduce the dependence of the federal budget and domestic economic conditions on energy prices for commodity-producing countries.

Since 2018, a new budget rule has come into force in the Russian Federation. According to it, all oil and gas revenues from oil prices above the baseline budgeted are used to purchase foreign currency by the Ministry of Finance and deposited in the National Welfare Fund (NWF).

The 2018 budget includes Urals oil prices of $40 per barrel. In the future, this level is subject to annual indexation by 2%. The difference between high prices and this value directly affects the formation of reserves, but this money does not enter the economy.

For the first 4 months of 2018, the purchases of foreign currency by the Ministry of Finance amounted to 988 billion rubles. Taking into account May, the total amount of funds directed to the NWF will amount to 1.3 trillion rubles. In total, according to the results of the year, the department predicts receipts of 3.5 trillion rubles into reserves.

Oil prices are holding on high level since the beginning of the year, currently almost 2 times higher than the base price of $40 per barrel. Compared to January forecasts, the estimate of additional oil and gas revenues increased by 1.75 trillion rubles, which corresponds to a budget surplus of 0.4% of GDP instead of the projected deficit of 1.3% of GDP in 2018.

At the same time, budget expenditures increase by only 62 billion rubles, since, according to the budget rule, additional oil and gas revenues are placed in the reserve and not spent. This fiscal policy is designed to reduce the dependence of the economy on energy prices and create a reliable reserve for periods of shortage.

Spending of the NWF funds is available in two cases: a decrease in oil prices below the baseline and the fund reaches 7% of GDP. In case of growth of reserves above 7% of GDP, additional funds are invested in infrastructure projects. With average oil prices of $55-60/bbl, the SWF could reach 7% of GDP in 2020. Assuming current high oil prices continue, the SWF target could be reached sooner.

The budget rule reduces the dependence of the economy on external factors and allows you to create a reliable reserve for periods of budget deficit.

The rule has a great influence on the exchange rate of the national currency. If earlier, with an increase in oil prices, the ruble strengthened due to the growth in sales of foreign exchange earnings by exporters, but now this effect is offset by purchases of foreign currency by the Ministry of Finance. Similarly, if oil prices fall below the base price, the sale of foreign currency from the NWF will support the Russian ruble.

The fiscal rule makes the ruble a more stable currency and reduces its dependence on oil prices.

A stable currency maintains the attractiveness of the fixed income market and reduces the risk premium of Russian debt securities due to the lower impact of oil price volatility on the economy. It also contributes to the formation of predictable macroeconomic conditions required to ensure sustainable economic growth.

The rule has a positive impact on exporters oil and gas industry. Due to the strong correlation between oil prices and the ruble exchange rate in recent years, the positive effect on company revenue from high oil prices was offset by the strengthening of the national currency.

Now there is no such dependence, which allows exporters to get a greater financial benefit from expensive oil.

Criticism of the fiscal rule

A number of experts criticize the current fiscal rule for being too rigid. The high NWF threshold of 7% of GDP reduces the effective investment of additional oil and gas revenues in infrastructure projects.

According to supporters of easing the rule, the current tough conditions do not allow the country to achieve economic growth rates above 2-3%. In addition, a number of experts refer to the fact that there is a negative impact on social development countries due to excessive savings.

Supporters of the rule current form cite as arguments a decrease in the volatility of the national currency, dependence on oil prices and an increase in the predictability of macroeconomic conditions for real sector economy.

Galaktionov Igor
BCS Broker