江苏快三开奖结果 > 股票基金 > Building self-control:Russia’s new fiscal rule

原标题:Building self-control:Russia’s new fiscal rule

浏览次数:103 时间:2019-09-30

Russia is breaking its oil habit. Starting from 2019, it will adopt a new fiscal rule toshield the economy from oil swings. Transition to the rule will start next year.。

江苏快三开奖结果,The Kingdom has unveiled an expansionary budget aimed at boosting growthfollowing this year's output contraction; delaying fiscal neutrality by three yearsto 2023.

Russian economy beat market expectations to grow by 2.5% YoY in Q2, the highest growth in 14-quarters as compared to 0.5% YoY in the previous quarter. The monthly data suggests that the growth was likely driven by industrial production, construction, transportation activity and retail trade. Household consumption is likely to have continued increasing in Q2, on the back of higher real wages and improving consumer confidence, declining household savings rate due to lower real interest rates, and improving household credit.

    The new fiscal framework has three pillars: expenditure benchmark, the sovereign fund,and public borrowing rules. The expenditure benchmark puts a cap on federal budgetspending, delinking expenditure from volatile oil revenues. The government will target a1% of GDP federal budget primary structural deficit (defined as the fiscal balanceexcluding the cyclical component of oil revenues and debt interest payments) in 2018.We think this is feasible. From 2019, the target will be 0% of GDP.。

    Although the fiscal loosening still remains modest but the government expectsan improvement in real macroeconomic indicators for the next year on the backof more capital expenditure and economic reforms. The budget forecasts anambitious growth rate for 2018, a real GDP growth of 2.7%. The Kingdom expectsan increase in the non-oil sector's growth to 3.7% with the private sector actingas the main driver (see figure 3 below).

    August data shows Russia is doing fairly well, but it is too early to call that 2Q performance can extend into 3Q. Construction output was up 6.1% YoY in August relative to 5.3% YoY in June. Transportation output also has been on positive side with August reading being 7.8% YoY. Retail sales and real wages being representative of demand have shown considerable improvement in past 2 months. The average retail sales for the first two months of Q3 is close to 1.6% YoY as compared to 1% YoY growth in Q2. Similarly, real wages have been showing positive trend with 2 months average being close to previous quarter’s average. A relatively slower growth in industrial output and real disposable income in July and August can be a drag on Q3 growth.

    The second pillar defines the mechanism for handling excess oil revenues (or lackthereof). The authorities will replenish the sovereign fund in case they get extra oilrevenue or utilise it if commodity markets disappoint. The sovereign fund rulerepresents a modified version of the current FX purchases mechanism, applied bythe Ministry of Finance (MOF) to curb oil-driven rouble strength in real effectiveterms. The government’s medium-term oil price assumption is USD40/bbl in 2017prices. We estimate total hard currency purchases will reach USD12bn in 2017.This sum will more than double next year, reaching USD25-28bn, assuming anaverage oil price in the mid-50s. Each additional USD1/bbl oil price increase wouldadd USD2bn to the MOF’s hard-currency purchases, according to our estimates.。

    The budget also reveals that the current account recorded a surplus of about14.4 billion riyals (USD 3.85bn) or equivalent to 0.5% of nominal domestic outputduring the first half of 2017, and is expected to achieve a higher surplus duringthe second half of this year with the surplus to continue in 2018 on the back ofhigher oil prices.

    Inflation surprised on the downside in August; likely to continue to decelerate. We expect the disinflationary trend to continue with annual inflation falling further to 3.1% YoY by year-end on the back of declining food prices and base effects. See EMEA Snap - Russia: August inflation opens door for more aggressive easing by CBR for more details.

    Finally, the public borrowing rule safeguards the sovereign fund from being utilised inthe event of a non-oil budget revenue shortage or a shortage of budget deficitfinancing. The MOF believes the public borrowing rule will keep public debt at astable and low level and minimise the impact of public borrowing on interest rates forprivate sector debt. Under base parameters, annual net public borrowing should notexceed 0.8% of GDP in the coming years.。

    According to the document, the budget deficit in 2017 is expected to reach8.9% of GDP, a significant decrease from the budget deficit in 2016 whichamounted to 12.8% of GDP. Revenue is expected to increase by 34% to reachSAR 696bn as a result of the increase in oil and non-oil revenues, while publicexpenditure rose by 11.6% to reach 926 billion riyals.

    The CBR decided to cut the key policy rate by 50bps to take rate to 8.50% in September. However the CBR remained cautiously hawkish in their tone. We expect the CBR to ease the policy rate by 2x25bps at the remaining two meetings this year to take the policy rate to 8.00%. See EMEA Snap - Russia (CBR): 50 bps cut served with a hawkish twist for more details.

    The underlying reason for implementation of the new fiscal rule is desire to create asustainable and balanced model of economic growth. The rule will also complementinflation targeting in promoting macroeconomic stability (please see: The need forspeed: Why Russia must boost its potential growth rate, 11September 2017). We donot think the new fiscal rule will weigh on Russia’s short-term growth outlook, asfiscal multipliers are low and monetary easing continues.。

    In the 2018 budget, the government aims to reduce the budget deficit to about7.3% of GDP. The YoY increase in the total revenues in the budget of 2018 isestimated at 12.6%. Non-oil revenues are expected to increase by about 14%.

    The Finance Ministry approved federal draft budget for 2018-2020 that should be welcomed by investors. The authorities expect the federal budget deficit to fall to 1.4% of GDP in 2018 and 0.8-0.9% of GDP in 2019- 2020. In 2017, the federal budget deficit is planned at 2.1%. The authorities plan to reduce domestic debt issuance to RUB 868bln in 2018 (RUB 870bn in 2019 and RUB 1.34bln in 2020). Revenues are expected to increase to RUB 15.18tn in 2018 and RUB 15.55tn-RUB 16.28tn in 2019 and 2020, respectively. On the spending side, the FinMin wants to raise expenditure to RUB 16.51tn in 2018 and subsequently to RUB 17.2tn in

    The 2018 budget includes an increase in public expenditure by 5.6% and anincrease in revenues by 13% compared to 2017. A main driver of the increasein government spending is capital expenditure which is due to the increase by13.6% to finance the vision project as well as state projects targeting residentialconstruction and infrastructure. On the revenue side, although tax collectionswould only contribute about 18% to revenues it is expected to increase by 46% in2018 on YoY basis driven mainly by taxes on goods and services (81% increase).

  1. A RUB 1.11tn drawdown of the National Wealth Fund is factored in to finance the budget deficit in 2018. This amount is to decline to RUB 4.5bn and RUB 3.8bn in 2019 and 2020, respectively. Special presidential advisor Alexei Kudrin presented a fiscal reform strategy in September. The proposals envisage fiscal deficit reduction to 1% of GDP by end of
  2. On the revenue side, Kudrin identifies high reliance on oil revenues as a problem and looks to stabilize revenues at 33% of GDP by switching from taxing oil exports to higher royalties paid for oil extraction and by eliminating some tax benefits. Expenditure reduction plans are more ambitious and Kudrin suggests increasing the retirement age and improving targeting to bring down social security spending. He favors higher spending on infrastructure, education, healthcare, but proposes to lower defence spending further.

    In the light of government growth targets and to stimulate the economy after ayear of recession (-0.5% real output contraction), the revisions made to publicfinances would delay achieving financial balance in 2023 instead of 2020.

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