The budget rule is perhaps the only working mechanism for reducing dependence that has proven itself in international experience. federal budget and internal 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 base value set in the budget are used to purchase foreign currency by the Ministry of Finance and place it in the National Welfare Fund (NWF).
The 2018 budget includes prices for Urals oil of $40 per barrel. In the future, this level will be subject to annual indexation on 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, currency purchases by the Ministry of Finance amounted to 988 billion rubles. Taking into account May, the total volume of funds allocated to the National Welfare Fund will amount to 1.3 trillion rubles. In total, at the end of the year, the department forecasts revenues to reserves of 3.5 trillion rubles.
Oil prices are holding at 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 expenses increase by only 62 billion rubles, since, according to the budget rule, additional oil and gas revenues are placed in reserve and are not spent. Such fiscal policy designed to reduce the economy's dependence on energy prices and create a reliable reserve for periods of shortage.
Spending funds from the National Welfare Fund available in two cases: a decline in oil prices below the base price and the fund reaching 7% of GDP. If reserves grow above 7% of GDP, additional funds are invested in infrastructure projects. At average oil prices of $55-60 per barrel, the NWF could reach 7% of GDP in 2020. Assuming that current high oil prices continue, the NWF size target could be achieved even earlier.
The budget rule reduces the economy's dependence on external factors and allows the formation of a reliable reserve for periods of budget deficit.
The rule has a great influence on the exchange rate national currency. If previously, when oil prices rose, the ruble strengthened due to increased sales of foreign currency earnings by exporters, but now this effect is compensated by purchases of foreign currency by the Ministry of Finance. Likewise, if oil prices fall below the base price, sales of currencies from the National Welfare Fund 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 lesser impact of oil price volatility on the economy. It also contributes to the formation of predictable macroeconomic conditions necessary 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 past 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 receive greater financial benefits from expensive oil.
Criticism of the fiscal rule
A number of experts criticize the current fiscal rule for being too rigid. The NWF's high 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 existing harsh 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 existing form cite as arguments a reduction 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
MOSCOW, July 14 – RIA Novosti. At a plenary session on Friday, the State Duma 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 set at $40 per barrel. Oil and gas revenues received at a price above this level will be directed to reserves.
The bill determines the maximum volume of federal budget expenditures, which cannot exceed the amount of oil and gas revenues calculated based on the base price of oil, the base export price of natural gas and projected exchange rate, non-oil and gas revenues, as well as expenses for servicing public debt. The base price for Urals oil is set at $40 per barrel in 2017 prices and is subject to annual indexation by 2% starting in 2018.
National Welfare Fund + Reserve Fund
In the second reading, amendments were made to the bill on the unification of the sovereign funds of the Russian Federation on the basis of the National Welfare Fund. Deputy Head of the Ministry of Finance of the Russian Federation Vladimir Kolychev explained that such a merger is proposed in conditions where the depletion of the Reserve Fund is predicted against the backdrop of oil prices that have dropped significantly over the past two to 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 planned to form a consolidated fund from additional oil and gas revenues.
If the total volume of funds in the combined fund exceeds 5% of GDP, it is proposed to limit its use to shortfall in oil and gas revenues; if the total volume of funds is less than 5%, then limit this volume to 1% of GDP.
The amendments provide that the funds of the Reserve Fund are credited to the National Welfare Fund (unified fund) no later than February 1, 2018. The Ministry of Finance will publish monthly information on the value of the National Welfare Fund's assets 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 volume of NWF funds placed with the Bank of Russia reaches 7% of the projected volume of GDP at the end of the next financial year and (or) the first and (or) second year of the planning period, 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.
11:37 — REGNUM The State Duma adopted the government law on the budget rule in the third final reading, the correspondent reports IA REGNUM July 19. According to the plans of the Ministry of Finance, which developed the bill, the adoption of a new budget rule will reduce the dependence of the federal budget on oil prices.
The rule sets a spending limit for the federal budget. Now it will not be able to exceed the amount of oil and gas revenues for the next fiscal year. The amount of oil and gas revenues is calculated taking into account the base price of raw materials (oil and gas), the predicted exchange rate of the ruble to the dollar, the volume of non-oil and gas revenues and the cost of servicing the government debt.
The base price of a barrel of oil when calculating the budget should be $40. From 2018, the cost of raw materials will be indexed annually by 2%.
"This is the rule in in full will come into effect in 2019, and for 2018 the maximum level of spending is proposed to be determined taking into account the primary deficit of 1% of GDP,” said the State Duma deputy Gleb Khor("United Russia"). He recalled that during the discussion of the draft law in the State Duma, there were proposals to increase the cut-off price used in the new rule from 40 to 50 dollars per barrel. “However, the majority of deputies considered it possible to maintain the $40 level proposed by the Russian government,” the parliamentarian added.
Additional revenues from the higher oil price will be redirected to the National Welfare Fund (NWF). Initially, the Ministry of Finance proposed filling the Reserve Fund with additional income, the main task of which is to reduce the budget deficit. For the same purposes, the department proposed to actually reorganize the National Welfare Fund and merge it with the Reserve Fund. However, the relevant State Duma Committee on Budget and Taxes noted that the main task of the NWF is to ensure co-financing of voluntary pension savings of Russians and ensuring budget balance Pension Fund. Therefore, it is impossible to redirect all the funds of the National Welfare Fund to the Reserve Fund.
By the second reading, the Ministry of Finance and the relevant committee changed the document, stipulating that the Reserve Fund would be liquidated by February 1, 2018 and merged into the National Welfare Fund.The new United Fund will take on the tasks ofbalancing the insurance pension system, financing the federal budget deficit, as well as co-financing voluntary pension savings.
Funds from the National Welfare Fund can be used, among other things, to co-finance voluntary pension savings and finance the federal budget deficit, depending on the balance of the fund at the end of the year, the State Duma deputy noted Leonid Simanovsky("United Russia"). “If the volume of NWF funds placed on deposits and bank accounts with the Bank of Russia exceeds 5% of GDP at the end of the next year, then the use of the fund’s funds to cover the deficit of the federal budget and the budget of the Pension Fund of the Russian Federation will be limited to the volume of lost oil and gas revenues, and if it does not exceed 5% “That’s 1% of GDP,” the parliamentarian noted, commenting on the law.
Russia's additional oil and gas revenues in the first six months of this year have already amounted to 1.7 trillion rubles, the head of the Treasury, Roman Artyukhin, told Izvestia. This is more than half the projected amount for the entire 2018. Experts support the Ministry of Finance’s desire to create savings at an accelerated pace: these funds should become a “safety cushion” in case of a new crisis.
Starting this year, a new budget rule has been in effect in Russia. For all revenues from the sale of oil at a price of over $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 “safety cushion” 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, revenues from the sale of oil at prices above $40 per barrel amounted to 1.7 trillion rubles. These funds are accumulated on separate foreign currency accounts, Roman Artyukhin told Izvestia after a joint round table of the Moscow Exchange and the Treasury.
The Ministry of Finance calls the key result of the implementation of the new budget rule, in particular, a decrease in the sensitivity of exchange rate fluctuations to oil price dynamics.
As a result, with an increased level of volatility in oil prices in 2017–2018 - from $43 to $80 per barrel - fluctuations in the ruble exchange rate against the dollar remained in a relatively narrow range: from 56 to 64 rubles, as noted in the “Main Directions of Budgetary, Tax and Customs -tariff policy for 2019 and the planning period of 2020 and 2021” prepared by the Ministry of Finance.
Moreover, if there were no budget rule, the dollar exchange rate would now be 50 rubles, First Deputy Prime Minister and Minister of Finance Anton Siluanov said in June. Current course American currency stays around 62 rubles/$. At the end of May, the minister made a similar statement 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 “whether the price of oil rises or the price of oil falls, this did not interfere with exports and conditions were stable.”
However, the head of the Accounts Chamber, Alexei Kudrin, said that the budget rule can and should be softened by $5 - making the cut-off price not $40, but $45. This, in his opinion, could make it possible not to increase VAT from 18 to 20% from next year. And the volume of additional budget revenues would be comparable to those that the treasury would receive from increasing the value added tax - 600 billion rubles per year.
Russia managed to receive more than half of the additional oil and gas revenues planned for this year thanks to a fairly high oil price, noted Alexander Deryugin, director of the Center for Research on Regional Reforms of the Russian Presidential Academy of National Economy and Public Administration. According to him, the predicted figure of 2.74 trillion rubles will most likely be achieved, and perhaps even exceeded. At the same time, the expert is confident that there is no need to soften the budget rule, since the cost of “black gold” is difficult to predict.
Revenue receipts 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, noted the head of the department “ Fiscal policy» Economic expert group of Alexander Suslin. She emphasized that when drawing up income forecasts, they proceed from average price for oil and the average dollar exchange rate, which may change throughout the year. According to her, optimal size"airbags" - approximately 7% of 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 an accelerated pace for another three years. The previous crisis showed that a “safety cushion” is necessary. It guarantees the ability to fulfill social obligations to the population in the event of a new economic shock.
The budget rule is economic policy, which determines the maximum amount of government spending depending on the price of oil. Following this strategy allows you to avoid state budget deficits during sharp fluctuations in the oil and gas market.
The budget rule is an economic strategy in which the planned costs include the marginal cost of oil and gas resources, which determines the amount of government spending. Cash, entering the treasury in excess of this amount are sent to reserve funds. Accordingly, if hydrocarbon prices do not reach the planned value, the budget is subject to cuts to achieve a deficit of no more than 1 percent of GDP.
In 2004, against the backdrop of a sharp rise in hydrocarbon prices, a decision was made to prevent the possible pumping of the state budget with petrodollars. For this purpose, the Reserve Fund and the so-called “cut-off price” were formed. If the cost of a barrel of oil reached $20 (in 2006 - $27), excess profits automatically went into savings, which made it possible to provide a “safety cushion” in the event of a crisis: and it came already in 2008
The meaning of economic strategy
Budget rule - what is it and what is its main essence? With hydrocarbon prices soaring, policymakers are tempted to decide social problems country and engage in populism due to the rain of petrodollars that spilled onto the fertile soil of social tension. But, as practice shows, investments in healthcare, education, housing, and infrastructure do not bring immediate returns, while long-term projects require rhythmic and multi-year investments.
To tie the hands of populists and provide a foundation for the future, a special rule for filling the budget is being introduced in countries that are overly dependent on the oil and gas market. Installed " base price» resources - hydrocarbons, based on which the maximum amount of government spending is planned. The deficit can only amount to a certain amount of planned income (in the Russian Federation - 3.7% of GDP).
This rule provides a number of advantages:
- The emergence of wealth funds due to excess profits and unplanned income from the growth of exports of raw materials;
- Smooth and gradual implementation of socio-economic projects;
- Rapid adaptation of the country's expenses to the price environment;
- Formation of foreign exchange and monetary reserves designed to ensure the fulfillment of government obligations in the event of a crisis.
Due to a sharp drop in oil prices, the BP was canceled in 2016. Instead of filling the Reserve Fund, the state began to intensively empty it. Thus, “Russia’s nest egg” by August 1, 2016 amounted to only $38.18 billion, against $91 billion available on September 1, 2014. According to calculations, a barrel of oil under the current policy should have been about $80, which is far from reality
Principles of operation of the fiscal rule in Russia:
- Limit value budget deficit - 1% of GDP;
- Hydrocarbon prices are calculated based on objective economic indicators, not forecasts;
- The maximum amount of oil and gas revenues that can be used to cover the needs of the state budget is 3.7% of GDP.
Fiscal rule in Russia in 2017-2018.
Since its recent appearance, the subject in question economic principle once underwent significant changes, and in 2016 it was completely frozen. In 2017, the BP can again be used to accumulate the Stabilization Fund. This prospect was publicly voiced by A. Siluanov, the Minister of Finance of the Russian Federation. Profits received when the cost of a barrel of oil exceeds $50 will be transferred to reserves - if there is “public support” for this.
The updated principle is intended not only to “untie” the economy from oil dependence, but also to rid the Russian ruble of sharp fluctuations. Its exchange rate relative to world currencies will receive a stricter “ceiling”, above which it will not be allowed to rise. This measure can hardly be called popular, since it does not help reduce prices for imported goods as the Russian ruble.
Criticism of the policy of restrictions
Many analysts believe that the formation of reserves at the expense of excess profits is an idea without a future, since resources are actually frozen. Instead of being used to implement profitable projects, the money remains in limbo for years. When the turn of crisis comes, the funds are used to extinguish social tensions and again do not provide GDP growth.
In other words, the budget rule of filling the revenue side of the state budget does not lead to a radical restructuring of the economy, but to the accumulation and freezing of problems. To fully experience this, you can look at the example of Venezuela. High prices for hydrocarbons, it was thought, allowed the country to cure many “chronic diseases” within 10 years: employment, urban overcrowding, inaccessibility of education.
But a two-year decline in oil prices has forced old difficulties to flare up with renewed vigor. Due to the deep dependence of the population on government subsidies, all social achievements collapsed within a few months. It should be noted that the economic policy in the Russian Federation turned out to be much more balanced, and instead of total impoverishment, the country only faced a significant adjustment in income. But without deep transformations in financial and economic policy, Russia may also suffer the same fate as Venezuela.