Interim fiscal rule from February 1. The State Duma introduced a new budget rule and combined the reserve fund and the National Welfare Fund
MOSCOW, July 14 - RIA Novosti. The State Duma at a plenary meeting on Friday adopted in the second reading a government bill on a new design of the budget rule and on the unification of the Fund national welfare(NWF) and the Reserve Fund on the basis of NWF.
Budget rule
Cut-off bar for the price of Urals oil in the updated budget rule set at $ 40 per barrel. Oil and gas revenues received at a price above this level will be directed to reserves.
The bill defines the maximum amount of expenses federal budget, which cannot exceed the amount of oil and gas revenues calculated based on the base oil price, the base export price for natural gas and projected exchange rate, non-oil and gas revenues, as well as the cost of servicing the state debt. The base price for Urals crude oil is set at $ 40 per barrel in 2017 prices and is subject to annual indexation by 2% starting from 2018.
NWF + Reserve Fund
In the second reading, amendments were made to the draft law on the merger of the sovereign funds of the Russian Federation on the basis of the NWF. Vladimir Kolychev, Deputy Minister of Finance of the Russian Federation, explained that such a merger is envisaged in conditions when the depletion of the Reserve Fund is predicted against the background of significantly reduced oil prices 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 of the federal budget deficit and co-financing of voluntary pension savings... The joint fund is supposed to be formed 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 shortfalls in oil and gas revenues, if the total amount of funds is less than 5%, then to limit this amount to 1% of GDP.
The amendments provide that the funds of the Reserve Fund are credited to the NWF (pooled fund) no later than February 1, 2018. The Ministry of Finance will monthly publish information on the value of the NWF assets at the beginning of the reporting month, the crediting of funds to the said fund, their placement and use in the reporting month.
According to the approved amendments, until the amount of NWF funds deposited with the Bank of Russia reaches the end of the next fiscal year and (or) the first and (or) the second year of the planning period 7% of the projected GDP volume, the placement of NWF funds in other financial assets is not allowed, with the exception of financing self-sustaining infrastructure projects started before January 1, 2018.
Published calculations of the Ministry of Finance on the main parameters of the budgetary system and the ruble exchange rate in the implementation of the "interim budgetary rule" from February. With an oil price of $ 55 per barrel, the calculated equilibrium exchange rate of the ruble will amount to 58.05 rubles / $ without conversion of excess income, and 64.9 rubles / $ if this policy is implemented. The budget, according to these calculations, is balanced at an oil price of about $ 58 per barrel and an exchange rate of about 64 rubles / $. Actually finance ministry suggests a devaluation of the ruble in the current situation by approximately 10%.
Reuters, the main channel of information for currency market operators, has published the official calculations of the Ministry of Finance on the main parameters of the budget, depending on the application of the "budget rule". Recall that the rule as such can be included in 2017 Budget Code and assumes, in various versions, the conversion in sovereign funds of a part of the oil and gas revenues of the federal budget, depending on the price of oil. After a meeting with President Vladimir Putin on January 18, from mid-February, a temporary, pending the adoption of amendments to the BC, a budgetary rule in a strict version is put into effect (see Kommersant of January 21). The 2017 budget, based on an oil price of $ 40 per barrel, is not being revised. The Ministry of Finance, through the Central Bank's operations, stores excess profits from oil exports in the foreign currency accounts of the Treasury with the Bank of Russia and is ready to spend them (in accumulated volumes), regardless of the spending of the Reserve Fund and the National Welfare Fund (NWF) when oil falls below $ 40.
Based on the calculations of the Ministry of Finance, with oil at $ 40 per barrel, the estimated average annual ruble exchange rate should be 69.42 rubles / $ (federal budget deficit - 3.1% of GDP, spending of reserve funds - 1.8 trillion rubles). With the current oil price of $ 55 per barrel, the budget deficit will amount to 1.5% of GDP without applying the budget rule, and the spending of reserve funds will amount to 464 billion rubles. (which implies the non-use of the NWF in 2017). If the declared regime of constant purchase of reserves to the Treasury accounts is applied, the deficit will amount to 0.7% of GDP, the reserve fund will be replenished by 241 billion rubles, the ruble exchange rate should weaken by about 10% and amount to 64.9 rubles / $.
The logic of the Ministry of Finance's calculations assumes that without the application of the budgetary rule and without the devaluation of the ruble, the balance of the federal budget is possible only if the oil price is $ 76 and above (the figure was obtained by a linear approximation of the calculations of the department of Anton Siluanov). With a controlled devaluation of the ruble, which does not formally affect the free float regime, the budget is fully balanced (zero deficit) with an oil price of about $ 61 per barrel; the refusal to use sovereign funds is possible in 2017 with an oil price of about $ 61 per barrel. Without a fiscal rule, sovereign wealth funds will be replenished when the oil price is above about $ 62 per barrel, with the rule applied - when the price is above $ 53. The difference in calculations is apparently determined by the estimated changes in borrowing in the domestic market. In the latter case, when the oil price is above $ 53, additional oil revenues in the "buffer-fund" at a rate of about 64 rubles / $ will exceed the estimated spending of sovereign funds in 2017 in 1.8 trillion rubles.
According to the calculations of the Ministry of Finance, the current exchange rate level of about 60 rubles / $ is considered impossible. If the "budget rule" is implemented, it will reach this level with oil of about $ 75-80, with a budget surplus of about 2% of GDP and an increase in the Reserve Fund by more than 2.3 trillion rubles in 2017. Thus, the statements of the Ministry of Finance and the Central Bank that the budget rule "as a whole" will not affect the ruble exchange rate are convincingly refuted by the financial department's own calculations.
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 internal economic conditions on energy prices for resource countries.
Since 2018, a new budget rule has come into force in the Russian Federation. According to him, all oil and gas revenues from oil prices above the baseline value, set in the budget, are used for the purchase of currency by the Ministry of Finance and placement 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.
In the first 4 months of 2018, 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, at the end of the year, the department predicts revenues to the reserves of 3.5 trillion rubles.
Oil prices have been at a high level since the beginning of the year, currently almost 2 times higher than the base price of $ 40 per barrel. Compared to the 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 budgetary rule, additional oil and gas revenues are placed in the reserve and are not spent. Such budgetary policy is designed to reduce the economy's dependence on energy prices and form a reliable reserve for periods of shortage.
The spending of the NWF funds is available in two cases: a decrease in oil prices below the baseline and the fund reaching 7% of GDP. In case of an increase in reserves above 7% of GDP, additional funds are invested in infrastructure projects. With an average oil price of $ 55-60 per barrel, the NWF could reach 7% of GDP in 2020. If we assume that the current high oil prices will persist, then the NWF size target can be achieved even earlier.
The fiscal rule reduces the economy's dependence on external factors and makes it possible to form a reliable reserve for periods of budget deficits.
The rule has a great influence on the course national currency... If earlier, with the rise in oil prices, the ruble strengthened due to the growth in sales of foreign exchange earnings by exporters, now this effect is compensated by purchases of foreign currency by the Ministry of Finance. Similarly, if oil prices fall below the base price, currency sales 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 market for fixed income instruments and reduces the risk premium of Russian debt securities due to the lower impact of the volatility of oil prices on the economy. It also contributes to the formation of predictable macroeconomic conditions necessary to ensure sustainable economic growth.
The rule has a positive effect on exporters of the oil and gas industry. Due to the strong correlation between oil prices and the ruble exchange rate in previous years, the positive effect on companies' revenues from high oil prices was offset by the strengthening of the national currency.
Now there is no such dependence, which allows exporters to receive a greater financial effect from expensive oil.
Criticism of the budget rule
A number of experts criticize the existing budget rule for being overly rigid. The high SWF threshold of 7% of GDP reduces the efficient investment of additional oil and gas revenues in infrastructure projects.
According to supporters of easing the rule, the existing tough conditions do not allow the country to reach economic growth rates above 2-3%. In addition, a number of experts refer to the fact that a negative impact is also on the social development of the country due to excessive savings.
Supporters of the rule in as it stands 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 the real sector of the economy.
Galaktionov Igor
BCS Broker
The State Duma today approved in the second reading a bill introducing a new budget rule and providing for the merger of the Reserve Fund with the National Welfare Fund (NWF). The bill sets the cut-off price for oil at $ 40 per barrel in 2017 prices - oil and gas revenues received above this level will be sent to a single fund.
Changes to the Budget Code providing for new design budget rule, approved by the deputies in the second reading. According to the bill, budget expenditures will be calculated based on Urals oil prices at $ 40 per barrel with an annual indexation of 2% from 2018. Only oil and gas revenues calculated from such a base price will be allocated to finance expenses - everything received at a price above the level will be sent to reserves. The new rule will begin to apply when preparing the 2019 budget.
Another change is the pooling of funds from the NWF and the Reserve Fund. As of July 1, the volume of the NWF amounted to $ 74.2 billion, the Reserve Fund - $ 16.7 billion. In the context of the exhaustion of the last funds of the NWF predicted by the end of 2018, they are planned to be used both to finance the budget deficit and to balance the pension system. As previously explained by the Deputy Minister of Finance Vladimir Kolychev, if the total amount of funds in the combined fund exceeds 5% of GDP, it is proposed to limit its use by falling oil and gas revenues. “If less, this volume is supposed to be limited to 1% of GDP in order to maintain the minimum allowable amount of funds in sovereign funds,” the official said.
The Reserve Fund will be credited to the pooled fund no later than February 1, 2018. Until the amount of funds of the NWF placed with the Central Bank reaches 7% of the projected volume of GDP (at the end of the next financial year or the first or second year of the planning period), the placement of funds of the fund in other financial assets is not allowed. The only exception will be self-sustaining infrastructure projects, financing of which began before January 1, 2018.
Evgeniya Kryuchkova
How did the idea of uniting off-budget funds come about?
The government generally supported the idea of pooling the resources of the Reserve Fund and the National Wealth Fund (NWF), proposed at the end of June by the Ministry of Finance. It is about the possibility to direct the funds of the NWF, not used to finance infrastructure projects, to cover the budget deficit, after the funds of the Reserve Fund currently used for these purposes are exhausted. The Ministry of Finance is to present a mechanism for the consolidation of funds.
The new fiscal rule, which should restore strict approaches to the use of oil and gas revenues from 2020, will take as a basis the oil price of $ 40 per barrel and will take into account the cost of servicing the public debt
Russian Finance Minister Anton Siluanov (Photo: TASS / Alexander Astafiev)
No primary deficiency
The new budget rule - a system of rules for the use of oil and gas revenues - will start working in 2020, will set the base oil price at $ 40 per barrel and will limit budget expenditures so that they should equal the base income minus interest expenses on debt servicing at the Moscow Financial Forum on Friday, Finance Minister Anton Siluanov. “The preparation of the budget rule, which, we believe, is possible for implementation from 2020, will consist in the fact that at a price of $ 40 per barrel, we should have a zero primary deficit. That is, all those debt service costs that will be included in the budget expenditures will just make up the deficit that we can afford, ”Siluanov said, the RBC correspondent reported.
In other words, under the new budgetary rule, the Ministry of Finance will calculate oil and gas revenues at a price of $ 40, add to them forecast non-oil and gas revenues (this amount will be considered basic revenues) and plan budget expenditures so that they are not higher than basic revenues, excluding interest payments on debt ...
The new version of the budget rule will be the fourth since the introduction of this practice of public finance management in 2004.
The old fiscal rule, which was in effect in 2013-2015, implied that the marginal budget expenditures are equal to basic income plus 1% of GDP. The new rule will replace this 1% with interest expenses, which are now just within 1% of GDP. According to the 2016 budget law, interest expenditures this year are projected at RUB 646 billion, or 0.8% of GDP. The primary budget deficit (a deficit excluding debt servicing costs) is projected at 2.2% of GDP, while the Finance Ministry wants there to be no primary deficit from 2020.
Why $ 40?
By the old rule base price for calculating oil and gas revenues that can be used to finance budget expenditures, was determined as the average annual price of Urals oil over a five-year period with an annual increase in this period by one year up to ten years (averaging over a ten-year period should have started from the 2018 budget). Surplus income (oil and gas income from the excess of real prices over the base price) was transferred to sovereign funds. The rule worked on rising oil prices, but in 2015 the estimated oil price under the fiscal rule was $ 96, while the actual price fell to $ 50. Therefore, for 2016, the budgetary rule was suspended, and instead, temporary rules were introduced (valid until February 1, 2017), which allow spending oil and gas revenues and savings of 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. This price was taken because it meets the threshold for profitability of shale oil production in the world ($ 40-50), explains a senior federal official familiar with the Finance Ministry's plans. 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. The 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 fiscal rule were in effect 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 told RBC. The Ministry of Finance proposes to index it annually on 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 foreign exchange market forced the Ministry of Finance to look differently at the purpose of the budget rule. Its meaning should be broader than just an opportunity to stabilize public finances, the task is to "isolate the economy from the volatility of oil prices," says an interlocutor in the financial and economic block of the government. The point is “so that the real effective exchange rate of the ruble does not fluctuate so much along with oil prices and does not fluctuate so much relative prices in the economy, inflation, exchange rate conditions and everything that affects the profitability of companies in different sectors”.
“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 arrive at 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 of the financial and economic block.
- Yuzhakov O.Yu. Bank management in the context of the economic crisis: international experience. A systemic banking crisis has begun in russia A systemic crisis occurs when bad assets reach
- How does the closed rotational village of Sabetta live in the far north of Sabetta who builds
- How to spend Zapsibcombank bonuses?
- The wives of the richest Russian businessmen and officials (29 photos)