Budget deficit will remain moderate in the medium term

According to the Ministry of Finance, the federal budget surplus in September 2017 amounted to 18 billion rubles, or 0.2% of GDP. For comparison, in September 2016 the budget was executed with a deficit of 131 billion rubles, or 1.7% of GDP.

The estimate of the budget deficit for August 2017 was revised upward: according to new data, the budget surplus in August amounted to 26 billion rubles. against a deficit of 59 billion rubles, which was reported earlier.

In the first nine months of this year, the budget deficit was equal to 301 billion rubles, or 0.5% of GDP. Since the beginning of the year, the Ministry of Finance has never used the resources of the Reserve Fund to finance the deficit.

Income continues to grow significantly faster than expenses

Federal budget revenues in January-September 2017 reached 10.97 trillion rubles, or 74.7% of the annual plan, and expenditures – 11.27 trillion rubles, or 67.9% of the planned amount for the year. The growth of oil and gas revenues in the first nine months of the year amounted to 24.2% yoy, and non-oil and gas – 14.5%.

At the same time, in January-September, expenses increased by only 3.7% year-on-year. Spending on social policy (plus 9.9% year-on-year), public debt servicing (plus 8.9%) and transfers to other budgets (plus 17.1%) grew at a faster pace. Defense spending fell by 7.1%, and health spending by 20.3%.

Budget deficit will remain moderate in the medium term

At the end of January-September 2017, the budget deficit amounted to 0.5% of GDP (compared to a deficit of 2.6% of GDP for the same period last year). Despite the relatively small size of the budget deficit in the first nine months of the year, its size will significantly increase in 4Q. due to the large volume of payments under government contracts, a significant part of which is closed at the end of the year.

Thus, in accordance with the government’s plans, this year the budget deficit will be equal to 2.2% of GDP, which is quite close to our estimate of 2.4% of GDP. In 2018, the government expects to reduce the budget deficit to 1.3% of GDP, which is in line with our forecast for next year.

In 2019, the government intends to reduce the deficit to 0.8% of GDP, which is slightly worse than our expectations (a deficit of 0.1% of GDP). The main reason for the discrepancy between the government’s plans and our estimate of the budget deficit in 2019 is a more optimistic view of the dynamics of oil prices on our part. Nevertheless, thanks to the introduction of the new fiscal rule, the budget deficit will remain quite moderate in the medium term, even in the event of significant fluctuations in oil prices.

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