Russian budget may return to surplus in 2021
State finances are expected to benefit from rising oil and a weak ruble
Russia’s 2021 budget deficit is projected to total 2,4% of GDP, but analysts consider that it can narrow substantially or even turn into surplus thanks to a revival in crude prices. If prices stay at the current level, Moscow is expected to top up the country’s financial reserves and allocate more money for social spending.
Rising oil prices and a weak ruble may give Russian authorities more leeway for social spending before this autumn’s election, says Reuters. The country’s economy was hit hard by the COVID-19 pandemic last year, but now the price of oil is rising along with demand. If the average oil price stays at $50 per barrel this year, the budget deficit can narrow from expected 2,4% of GDP to just 0,5%, says Chief Economist of Renaissance Capital Sofia Donets. According to the economist, the budget can even return to surplus if Russia’s flagship Urals blend goes above $55.
Earlier this month, Minister of Finance Anton Siluanov said that the prospects for state coffers and the National Wealth Fund (NWF) were looking good due to rising oil prices. “If such a situation continues [...], we may increase our forecast for the NWF and could decide to invest some of it,” he said. The reserves could be increased by $25 billion to over $200 billion provided that oil prices and the ruble remain at current levels, considers Chief Economist of BCS brokerage Vladimir Tikhomirov.
The current economic situation can help the government, as it may need to cheer people up before the parliamentary elections scheduled for this autumn. While the Kremlin has denied having plans for a new 500-billion-rubles social spending package, which were discussed in the media at the beginning of February, some payment proposals will certainly arise. According to Reuters, President Putin has instructed his government to study pension increases for working pensioners, check whether public sector workers are fairly paid and consider extending mortgage subsidies introduced last year.
However, lingering inflationary risks are a sensitive issue for the president, as he has promised to improve living standards. BCS’s Tikhomirov considers that “the expansion of social spending ahead of the elections and amid an economic recovery will definitely have a significant impact on inflation”. The latter exceeded the Central Bank’s target and reached 5% in annual terms in 2020, while real incomes of Russians lost 3,5%. The regulator has already admitted that reaching its inflationary goal would take longer than expected. Nonetheless, the key rate may rise as soon as this year, said the Central Bank last week.