There's money, so hang in there

War is not only casualties and destruction, but also costs. Ukraine has lost more than a third of its economy, but is receiving support from outside. On the contrary, they are trying to prevent Russia, as an aggressor. How long can Russia afford to fight?

"For a long time! — answers MSU professor Natalya Zubarevich . — Our military budget was planned for 2022 in the amount of about 3.5 trillion rubles. The total federal budget expenditures will be 29 trillion rubles. Of course, the military budget has increased. Estimates - no one knows adequate figures - [it] became approximately 5–5.5 trillion rubles, this is approximately 22%. At the peak of the Army rearmament program in 2015, the share of national defense spending was 20%. Now it will be somewhere around 22%. And?.. Don’t measure it in rubles, dollars and chips! As a percentage of the federal budget, this is not such a hell of a growth.”

There's still enough money

At least one thing in Russia is structured correctly - this is the so-called financial block: the Central Bank, the Ministry of Finance. Putin has learned the lessons of the 1998 default well and understands that finances must be in order. If you want to throw down the gauntlet to the “collective West”, have the money to do it. At the first opportunity, Russia repaid its foreign debts ahead of schedule, began saving money in the National Welfare Fund (NWF) and faced the war with low debt, huge reserves, a stable banking system and some kind of market economy.

This made it possible to withstand the first blow of the crisis. An economic catastrophe in Russia, contrary to expectations, did not happen. Our economy may be, as Joe Biden puts it, staggering , but it’s standing. She is moving towards disaster slowly but surely .

The budget is still in surplus - 55 billion rubles as of October 1. And this takes into account the growth of military and social spending - indexation of pensions, payments to low-income families.

There won't be enough money

The budget surplus figure is, of course, disingenuous: it includes the first two pre-war months and the spring, when oil prices were high and the dollar was expensive (mineral extraction tax rates and export duties are set in dollars). For the last four months, starting in June, the budget has been running a deficit; a total of 1.5 trillion rubles has been accumulated, and at the end of the year there will also be a deficit. According to the official forecast - 1.3 trillion rubles.

And these are just the flowers and berries ahead. In the draft budget for 2023 approved by the government, the deficit is 2.9 trillion rubles. And this figure was calculated even before Putin announced mobilization.

We have problems with the budget for a long time, everyone admits this. It is necessary to take into account objective factors that directly affect the revenue side of the budget; they are long-term in nature, President Putin admonished the government when preparing the budget. What are these factors?

Oil prices. So far they are declining (in September, Russian Urals cost $68 per barrel, according to the Ministry of Finance), and it seems that this will last for a long time. We won’t go into detail about this, but the global economy is on the verge of a recession, which means the demand for oil will fall. The Central Bank blamed the Ministry of Finance for expecting too high prices. This year, the budget would have gone to zero at $105 per barrel, estimated Natalia Orlova, chief economist at Alfa Bank. Moreover, oil has not risen above $92 this year. But an oil embargo looms ahead - from December 5, Russia will neither be able to sell oil to the European Union nor use the financial infrastructure of the European Union to trade oil. In a harsh scenario, the Russian budget could lose 30–50 billion dollars (1.8–3 trillion rubles) in 2023.

Economic recession. When the first shock passed, it became clear that the decline would be strong, but not so fast. Therefore, forecasts - both official and independent - for this year began to improve, but for the next - to worsen. The forecast of the Ministry of Economic Development is difficult to take seriously - it is so optimistic. But the Central Bank expects a recession next year, followed by two years of sluggish growth - as a result, even in 2025, the main economic indicators will be lower than in 2021. A smaller economy means less budget revenue.

Strong ruble. A high ruble exchange rate is unfavorable for the budget - in this case, each dollar of taxes and duties from exports brings it less ruble income. Minus one ruble in the dollar exchange rate costs the budget, according to various estimates, 130–200 billion rubles, said Finance Minister Anton Siluanov (we are talking about the average exchange rate for the year): “That is, 10 rubles of the exchange rate is more than a trillion rubles. Good volume." do anything about the “overstrengthened” ruble The authorities cannot . All they managed to do was raise the dollar from 50 to 60 rubles.

All of the above is more or less taken into account in the draft budget (no one can accurately predict, say, the price of oil). But surprises are possible, and even probable - with the beginning of the war, black swans flew in flocks. The last one is mobilization: its impact on income has not been taken into account, but it definitely will be. “The economy is starting to collapse. If previously it was mostly people who could not find themselves in productive work who went to war, now with each mobilized person there will be a new gap in the economy, a breakdown in some production chain, a reduction in budget revenues,” write analysts at Ari Capital Management Company. We will receive sanctions, 300 thousand working-age people who paid taxes will leave the market, company incomes will drop significantly (and with them the income tax), small companies, for which the loss of one or two employees is already a problem, will not be able to fulfill their obligations, etc. ..., HSE professor Evgeniy Kogan describes the situation: “As a result, it will become noticeable at the macro level. And it will become obvious that with the economy and budget, all parameters also need to be recalculated.”

More money will be needed

Let's move on to expenses. They are planned for 29 trillion rubles next year, but they are growing by leaps and bounds: it is necessary to support either some industry or a group of the population, but there is nothing to say about war expenses - they are classified.

Moreover, no one has yet calculated the cost of mobilization. It requires a lot of money, only official reports indicate an increase in budget funding for all law enforcement agencies next year by 1.1 trillion rubles, notes Professor Zubarevich. Economic expert Yuri Gavrilechko, based on official figures, estimates payments to those mobilized at 110 billion rubles per month (more than 1.3 trillion per year), but these people still need to be clothed, fed, armed, treated and buried. Military spending will increase significantly in the coming months, write analysts at Ari Capital.

Money is needed not only for the war itself. Expenditures under the item “National Security and Law Enforcement Activities,” which includes the budgets of the Ministry of Internal Affairs, the Russian National Guard, special services, the Investigative Committee, the prosecutor’s office and the Federal Penitentiary Service system, will increase 1.5 times next year , to 4.2 trillion rubles. There was a similar increase in 2012 after the protests on Bolotnaya, but in absolute numbers it is much higher.

How to make ends meet

As in life, there are only a few ways to do this in a budget: earn more, spend less, dip into your nest egg and borrow. Everyone will be involved in one way or another.

To increase budget revenues, taxes will be raised , mainly on mining enterprises. Minister Siluanov called this “a fair withdrawal of part of the natural rent.” Over three years, this will give approximately 2.5 trillion rubles.

But many expenses will be reduced - not military, of course. The government intends to reduce unprotected budget items by 10% . But this is still not the main measure, but rather a signal: money from the Ministry of Finance will now have to be received with a fight. Despite the difficulties with the budget, it is unlikely that the government will make a significant reduction in spending, Orlova doubts : to stop the decline, it will be necessary to finance support measures, and besides, next year is an election year - it will have to be spent.

There is also a stash - the National Welfare Fund, which in the middle of this year had, according to a very rough estimate, about 5 trillion available rubles (this is described in detail here ). This is where the government now takes money to support the economy.

But the government plans to make loans the main source of covering the deficit. And it's going to take a lot.

How much can you borrow

On the foreign market - almost nothing. Funds raised in dollars and euros will be immediately frozen. Russia, in connection with the forced yuanization , is thinking about issuing bonds in yuan, but this is also not an option.

But in the domestic market the possibilities are almost limitless. Russia has very little debt : approximately 15% of GDP - one of the lowest in the world. According to Siluanov, it is planned to close the deficit in 2023 mainly through federal loan bonds (OFZ). The plan is as follows: in 2023 - 2.5 trillion rubles, in 2024 and 2025 - 3.4 trillion each.

As a result, the national debt in 2025 will grow to almost 30 trillion rubles, but this is not scary , less than 20% of GDP. If necessary, much more can be placed: both 25 and 30% of GDP is a very small debt.

But will there be buyers for such amounts? The Ministry of Finance is confident that yes: that is why it will increase loans. And he’s right: one of the consequences of Russia’s isolation is that there is nowhere to invest money. Lending during an economic downturn is risky; state bankers said they were ready to buy OFZs. The Central Bank notes the public's interest in these securities. them from buying securities of “unfriendly” countries He forbade .

The Russian authorities should not have problems with money. But problems can arise from extra money

So it's just a matter of price. For now, the Ministry of Finance is very picky: if investors ask for a return that is too high, in its opinion, it simply does not sell them securities. When the Central Bank raised the rate to 20% after the start of the war, the Ministry of Finance warned that it would not borrow for some time. The budget was still in surplus at that time - I could afford it.

Now the situation has changed: money is needed. A week ago, the Ministry of Finance approved the issue of OFZ with a floating coupon for 500 billion rubles, which it did not want to issue before: it sold a lot of them in the pandemic year of 2020, a record for the amount of borrowing. Such securities are convenient for the borrower in troubled times, because their yield is tied to the market. It is not possible to sell ordinary fixed-income bonds from the moment the mobilization is announced. We have to be more accommodating. Last week, the Ministry of Finance borrowed almost 50 billion rubles: half with a regular coupon, half with a floating one.

It turns out that Russia should not have problems with money - loans will help out. But money can be a problem.

Impact on the economy

Large budget expenditures during an economic downturn are fraught with rising prices. To simplify greatly, a lot of money will flow into the economy, which will not be backed by goods - hence the growth (the Central Bank described the supply shortage, for example, here ).

The Central Bank will fight this - raise the rate to make credit money more expensive. In addition, the Ministry of Finance with its huge loans will become a competitor to business in the credit market. “We must leave the privilege of borrowing at a fixed rate to the economy. The budget should not be in front here with its bowl at the distribution. Let the economy pass, let it breathe a little,” urged the chairman of the supervisory board of the Moscow Exchange, former first deputy chairman of the Central Bank, Sergei Shvetsov, the Ministry of Finance. In general, you can forget about cheap money .

Since the budget will vacuum up more and more money that will go to war, people will have less of it, and they will consume even less. Weak demand is now one of the main problems of the economy.

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When other ways to balance the budget don't work, what's left is the printing press [issuing fiat money] and taking more money from people, argues Professor Zubarevich - and the government appears to have taken the second path. As an example, she cites the postponement of the planned increase in housing and communal services tariffs (by 8–9%) from July 2023 to this December: “Against the backdrop of falling real incomes of the population, as well as due to the loss of breadwinners in many families as a result of mobilization, there is a high probability that households simply cannot afford the new tariffs. Russians’ debts for utility bills already reached a record amount at the end of the first quarter - 804.5 billion rubles.”

There will be a great temptation to solve this problem with some kind of indexation or payments to the poor, which will increase budget expenditures and require new loans - and this is how the inflation flywheel spins up. To stop it, the Central Bank will have to raise the rate even more...

Finally, in emergency conditions, measures can be extraordinary. A big risk is the nationalization of private companies, especially those owned by oligarchs of the pre-Putin era, according to Ari Capital analysts. a song by the group “Otava Yo” on his Telegram channel Shortly after the mobilization was announced, Oleg Deripaska posted with the following words: “Speculator, speculator speculates. And the people’s power is requisitioning!”