The federal budget posted surplus of RUB278bn in June, down from upwardly revised RUB467bn in May, according to preliminary figures published by the FinMin. This brings the H1 surplus to RUB1.56 trillion or about 1.5% of the expected annual GDP, which is better than in H1 2018 when the surplus was 0.8% of the GDP.
Budget revenues increased by 10.7% y/y in H1, driven primarily by non-oil revenues (+15.7% y/y), a result of the VAT hike and higher corporate profit tax proceeds. Oil&gas revenues were up by 4.7% y/y in H1 and only 2.6% y/y in Q2’19. The latter is still a good result compared to the 8% y/y decline of Brent prices during Q2 and we expect that the trend of easing oil revenues will continue. Meanwhile, control over spending remains tight with an increase of only 3% y/y in H1, translating in a fall in real terms. The largest increases are seen in spending on social policy (the pension indexation) and healthcare, followed by spending on utilities and the environment. Spending is down on defense, transfers to regions, debt servicing. Overall, fiscal performance remains very string this year and we expect that the annual surplus will exceed 2% of GDP as it was the case last year.
Earlier this week the upper house of parliament approved the revision to budget 2019 and it now remains only to be signed by the president. The revision preserves most macro assumptions. The FinMin expects revenues to outperform the current target by RUB206bn, entirely due to RUB264bn additional non-oil revenues. Almost the entire additional non-oil revenues will be used to increase spending (+RUB257bn), which is in line with the fiscal rule, while the expected budget surplus was decreased marginally to 1.7% of GDP from 1.8% previously.