It is becoming clearer where the government will get money to pay for the war. At the end of September, a government resolution
was adopted introducing export duties of 10% on mineral fertilizers and 4-7% on all other products. The measure is said to be temporary, and the duties will go to zero at an exchange rate of 80 rubles to the dollar. However, no forecast
envisages the dollar cheaper than 90 rubles before end-2024.Replenishing the budget
The duties are being introduced to protect the domestic market, according to the resolution. Indeed, as economist Elena Akhmedova notes
in her Telegram channel Tverdye Tsifry (“Hard Numbers”), the measure could boost the ruble by about 4%. Nevertheless, the local currency has reacted weakly so far: after a slight bump on the day the resolution was adopted, it went back to weakening versus other currencies. Perhaps something will change after the new export duties take effect on October 1, though Akhmedova and other experts emphasize that alone they will not strengthen the ruble.
“A weaker dollar against the ruble” is not very advantageous for the Russian government, as it makes the budget situation tougher, points out financier Andrei Movchan, founder of the investment management company Movchan’s Group
. “In this case, the duties are a way to fill the budget, and they will be set at a level so that… the ruble does not strengthen too much, otherwise the effect will be neutralized. I do not think that this measure has been fully worked out; most likely it is a test measure, checking the reaction of the export and FX markets. Most likely, as the situation is observed, the parameters of the export duty will be changed; ideally, it should lead to an increase in budget revenues without strengthening the ruble,” explains Movchan.
No one is hiding the fact that extra money will flow into the budget: the explanatory note to the 2024 draft budget puts
“nonrepayable receipts from nongovernmental organizations and the sale of foreign assets” at RUB 114.5 billion – and that is only for 2023.
Akhmedova believes that revenues from the export duty will amount to $11 billion in 2024 at the current ruble exchange rate and $8.5 billion if the ruble strengthens to 90-95 to the dollar, as it is expected to by the middle of next year. Not a bad boost to the budget, where defense spending
next year is penciled in at 6% of GDP or RUB 10.6 trillion (about $100 billion). “President Putin promised not to raise taxes. But... the budget is very short of money,” economist Sergei Aleksashenko, former deputy chairman of the Central Bank, ironically
Meanwhile, economist Sergei Petrov (name changed by request) sees things differently. “For the 3rd quarter of 2023, RUB 90-140 billion is expected to come from the new export duties. This is only 0.3-0.6% of the federal budget revenues planned for 2023. These duties will not have any significant impact on the budget deficit. But [now] there is a risk of production falling,” he says.
Sure, the budget gets extra money, inflation perhaps slows and the ruble is supported, argues
Evgeny Kogan, investment expert and founder of the BitKogan project, in his Telegram channel; however, there are more negatives in the measure than positives. Firstly, relatively small companies could be hit; the introduction of these duties means that they will have no choice but to close their business. Secondly, they might not have the effect of curbing inflation – many companies might, following the example of Alrosa
, suspend exports for 2-3 months. Yet in that case the resulting export overhang could come back to bite. Thirdly,