Russian Macro: Strong surpluses to weaken, growth to strengthen
The federal budget posted a surplus of R1,967 trln or 1.8% of GDP, in line with expectations. Total revenues reached nearly R20.2 trln. Revenue collection was particularly strong in December as non-oil-and-gas revenues increased by around 29% y-o-y, while in 2019 as a whole they were up by 17.4%. The current account also remained strong, albeit less so than expected.
There is still plenty of room for further government stimulus of the economy without jeopardizing the budget. Very strong revenue collection from the non-oil-and-gas segments of the economy amid decelerated inflation (to 3.0% y-o-y in December 2019) may hint that economic growth in the country was not as poor as official statistics indicated. A rather high level of non-oil-and-gas revenues in 2019 should set a good base for revenues in 2020, which will keep growing, albeit more moderately.
The composition of the recently appointed new government resembles a kind of acceptable balance between the guardians of fiscal conservatism (such as Finance Minister Anton Siluanov, who no longer maintains the position of the First Deputy PM) and the new First Deputy PM Andrei Belousov, who previously served as economics advisor to the president and is known as an advocate of the view that the government should play a greater role in the economy.
- Looking at the budget and the external balance together, then it can be concluded that both the current account and the federal budget surplus are set to shrink in 2020, but will remain positive. Assuming the price of oil is the same as in 2019, total exports are not going to change much in 2020, while imports can easily grow by around 8%, meaning that both the trade balance and the current account may decrease by around $20 bln (assuming only minor changes of other balances of the current account). That said, the current account surplus can fall to around $50bn in 2020.
- The fiscal rule, however, will keep forcing the Ministry of Finance to buy FX in almost the same amounts as in 2019. Last year the ministry spent around R3.5 trln on FX purchases, the equivalent of some $54 bln (i.e., around 77% of the current account). These purchases well exceeded the federal budget surplus and the rest of the cash was raised from domestic borrowing (nearly R1.4 trln).
- If the current account and the budget surpluses shrink as assumed above, while Minfin’s appetite for FX purchases remains relatively unchanged, then it will mean that the ministry will target to buy the entire current account surplus in 2020. In this case significant changes in the ruble and FX segments of the markets can be expected unless Minfin decides to reduce its activity on the FX market or additional foreign capital flows into Russia.
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