Price cap on Russian oil to not Bring Down Russian Financial System

Price cap on Russian oil to not Bring Down Russian Financial System


Minister of Finance of Russia Anton Siluanov said that the federal budget deficit by the end of 2022 will be about 2% of GDP, which will be covered by borrowing.

Moreover, according to Siluanov, the use of the National Welfare Fund (NWF) for these purposes will be "minimized."

The fact is that the large operations on the financial market, which are now carried out by the Ministry of Finance, and the significant volume of budget expenditures will partially affect some of the 2023 expenditures. So, the same deficit is predicted for next year.

There are two main sources to cover the budget deficit in the plans of the Russian Finance Ministry for the coming years, namely, raising funds from the financial market and using the resources of the National Welfare Fund. However, in order to minimize the expenditure of the NWF funds, at the end of the year it is planned to actively enter the financial market, while the funds of the National Welfare Fund will be primarily used to finance infrastructure projects.

It should be noted that in December, according to expectations of the Ministry of Finance, the federal budget will receive additional 1 trillion rubles ($15.82 bln.) 756.1 billion rubles ($11.96 bln) from oil and gas revenues and sales of other energy resources. This is due primarily to an increase in the actual price of oil at the base level.

Besides, the day before the Russian Ministry of Finance held auctions where it placed federal loan bonds for another 808.778 billion rubles ($12.79 bln.) It is noteworthy that the demand for the federal loan bonds in November 2022 reached its peak in the entire history of placement. Thus, on November 16, auctions were placed bonds with a nominal volume of more than 820 billion rubles ($12.97 bln), and the total growth of investors at the same time amounted to 1.2 trillion rubles ($18.98 bln), which was a record in the entire history of OFZ auctions.

Earlier, Siluanov said that the Russian budget deficit this year could exceed 0.9% of GDP. According to him, it will be 2% of GDP in 2023, 1.4% of GDP in 2024, and 0.7% of GDP in 2025. That is why, according to the Minister, it is too early to assess the impact of the ceiling on Russian oil prices on the budget “and it is absolutely not a market mechanism.” According to Siluanov, such measures change the market and it will either affect the volume of supply of raw materials or its prices.

At the moment, the Russian Government is developing the counter measures and in this connection Vladimir Putin said that we “will not sign” any contracts which would indicate the price ceiling.

According to the Russian leader, Russia will cooperate only with “consumers working on market conditions” and even if it is necessary to reduce production of hydrocarbons. According to Siluanov, the level of inflation in Russia is under control and as for the borrowings in the market, they have “no impact” on the growth and dynamics of prices. For his part, the Chairman of the State Duma Vyacheslav Volodin said that it was necessary to continue doing everything possible to increase salaries in Russia, solve social issues and improve the well-being of citizens.

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