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Again 25... Are we talking about next year or about the key rate? 🤷🏻♂️
Another 25... Are you talking about next year or the base interest rate? 🤷🏻♂️
There are more and more signs that next year will be a bad one. More price increases, devaluation, stagflation, but not stagflation.
In the world of finance, it is more convenient to be a pessimist. Inflated expectations most often lead to failure. Even when the authorities prepare a budget, they include a minimum of positive content in the base plan. Because “hope for the best and prepare for the worst.” It is better to be cautious than to be overconfident in your forecasts.
Today we will present you our vision of the near future. It is already clear that we do not expect anything good from there. Of course, I hope so. But not too much.
Economists and financiers were busy drafting the budget throughout October. This came as a surprise to many. The draft budget contains unexpected moments even for the Central Bank, which commented on the document. We are not going to focus on everything. Let us just note that revenues are planned at 40.3 trillion rubles, expenses at 41.47 trillion rubles. The deficit is 1.2 trillion rubles, or 0.5% of GDP.
In principle, you can buy it. Please keep in mind that this is a project. But the reality can be confusing 🐷
In the expenditure structure, the largest item in 2025 will still be defense, which will account for 32.4% of total expenditure, or 13.49 trillion rubles. In 2024, this item will cost less than 10.8 trillion dollars. Here you can see an increase of 25%. Economists call this part of the budget the most inflationary. By the way, the same part of the budget was spent on defense in 1940.
Regulators make forecasts. Here is a direct quote from the monthly review:
🌌 The expansion of the budget deficit recorded by the Central Bank increased from 2.1 trillion rubles to 3.3 trillion rubles in 2024. The deficit amounted to 1.1% of GDP, which increased to 1.7%. In other words, there is no guarantee that the deficit will not increase next year. The current target is 0.5% of GDP, or 1.2 trillion rubles. However, an upward revision is possible.
The Central Bank also announced that it would raise housing and communal services tariffs from July 1. From July 1, it is expected to grow by 11.9% instead of the initially planned 5.7%.
According to the bank's forecast, the Central Bank will not begin reducing interest rates before the second half of 2025. It's funny, but exactly a year ago we heard this from experts and market participants. Everything turned out just the opposite 🙃
The only question is how the Treasury will cover the deficit when the funds were borrowed in difficult times. In just nine months of this year, OFZs were placed for almost 2 trillion rubles at par, which is slightly more than 60% of the planned indicators for this period (3.3 trillion rubles). The Ministry of Finance immediately increased plans for the fourth quarter to 2.4 trillion rubles. The institution plans to achieve the planned indicators with a high percentage of floating bonds.
👉 Last week, one of the OFZ package auctions was declared completely invalid and no buyers were found. The previous day's auction on Wednesday was quiet and lackluster. Government bonds worth 25.55 billion rubles were issued. There are 10 weeks left until the end of the year. At this rate, quarterly plans can be implemented, but only if there is interest from investors, most of whom are large commercial banks.
In the third quarter of this year, Russia's external debt to GDP fell to 14.5%, a record low. In dollar terms, that's less than $300 billion.
However, it is worth keeping in mind that the reduction in external borrowing may simply be due to the fact that foreign investors have stopped lending to us. And local residents are reluctant to buy Treasury debt securities at high interest rates.
How do you finance a deficit if you also have to pay off old debt?
At the same time, oil and gas revenues by 2025 will make up about 23% of the total revenues of the Russian budget, Finance Minister Anton Siluanov reported at a meeting of the State Duma Budget Committee. This is the lowest figure since 2011.
There is no reason to rejoice that Russia has avoided the oil needle. The problem is rather the fall in oil prices; the price of oil next year is set at $69.7 per barrel of Ural grade.
Oil prices are under significant pressure due to the slowdown in the Chinese economy and slowing growth in global demand. OPEC expects global oil consumption to grow by 1.9 million barrels a day, or about 2%, in 2024. This figure was previously forecast at 2.1 million barrels. The cartel has revised its forecast for the third time in a row, deviating from the optimistic scenario. The International Energy Agency's forecast is half that of OPEC.
The Treasury is encouraging. The decline in oil and gas revenues will be offset by taxes. Budget revenues have increased significantly. Thus, the greatest growth was shown by taxes on profits paid by organizations (15% of budget revenues in 2023). VAT is among the three largest taxes in terms of budget revenues. It includes both domestic (25% of budget revenues in 2023) and imported (15%). A tax reform is planned for January 1, which will theoretically also help plug the hole in the budget. Of course, if there are still taxpayers left. And companies are shouting louder and louder that current interest rates are simply strangling the economy.
How can we make up for the deficit? The answer is very simple. Devaluation of the ruble. We have been through this many times before.
According to some estimates, a rate of 109 rubles per dollar is needed to balance the budget amid falling oil prices. A week ago, the greenback level rose to almost 100. Meanwhile, the Finance Ministry's forecast for next year is 96.4 rubles per dollar.
Vladimir Tolgsky investigates how everything will actually happen in the ProDengi club.