Advances given out: Treasury spending in January may lead to a rise in the key rate
The outpacing budget spending in January may encourage the Central Bank to raise the key rate in February, experts believe. In the first month, the authorities have already spent more than 10% of the 4.4 trillion planned for the year, according to the Ministry of Finance. This is one and a half times higher than last year's figure. Due to increased spending and lagging revenues, the treasury deficit of 1.7 trillion was formed at the beginning of the year. This is more than the entire deficit plan for the year. The reasons are in the advance payment of state contracts and indexation of social benefits. However, the Ministry of Finance promises that by the end of the quarter the situation will level out.
What the Ministry of Finance spends money on at the beginning of the year
In the first month of 2025, the budget was formed with a deficit of Br1.7 trillion (0.8% of GDP), according to the preliminary assessment of budget execution by the Ministry of Finance. This is 42% higher than the expected year-end shortfall of 1.2 trillion (0.5% of GDP). And 16 times higher than the level of 2024 for the same period (124 billion).
In January, the authorities spent a total of almost Br4.4 trillion from the federal treasury - more than 10% of all planned expenditures for the year (41.5 trillion). This amount is 1.7 times higher than in 2024 for the same period.
The acceleration of expenditures at the beginning of the year is due to the fact that the government promptly signed contracts with contractors and transferred advances on them, explained the Ministry of Finance. At the same time, the ministry does not expect significant deviations from the forecast at the end of the quarter - that is, everything is going according to plan.
At the same time, some of this year's expenditures were financed at the expense of additional oil and gas revenues at the end of 2024, says the Ministry of Finance. That is, the money was actually received last year, but it was not taken into account then, and was spent only now. This was necessary to support the budget this year against the background of a possible increase in the key rate and the subsequent growth of the treasury's liabilities.
Budget revenues in January also overtook last year's values, but only by 11.4% (and expenditures, we remind you, grew by 73.6%). Receipts amounted to 2.7 trillion out of the planned 40.3 trillion for the year.
According to the agency's estimates, most of it came from payments not related to oil and gas - mainly value-added taxes, profit and income taxes, as well as excise taxes and duties. They reached 1.9 trillion, slightly exceeding the plan for the beginning of the year. At the same time, receipts for one of the largest items - VAT - slightly decreased due to the accelerated refund of the fee in the first month (if the company had an overpayment, but proved that it transferred the excess amount to the budget), the ministry explained.
InJanuary, oil and gas revenues increased - by 17%, to 790 billion. The Ministry of Finance explained it by the growth of the dollar and gas prices.
In general, the ministry expects that with such dynamics, the treasury revenues may exceed the annual plan. Additional raw material payments are accumulated in the National Welfare Fund (NWF), and subsequently sent to cover the shortfall - this makes the budget more resistant to fluctuations.
How budget spending will affect the key rate
The increase in expenditures in January compared to the same period in 2024 is due to the introduction of a simplified mechanism for advance payments for state contracts and settlements for works and goods, explained Alla Chalova, associate professor at the Department of State and Municipal Finance at the Plekhanov Russian Economic University. In addition, the Ministry of Finance is strengthening control over the timing of contracts, which has also accelerated the pace of spending, she added.
The increase in spending on government contracts is due, in particular, to the growth of ruble costs for the purchase of imported raw materials, equipment and components, said Andrei Barkhota, PhD in Economics. To fulfill the same tasks as before, companies now need more money.
Inaddition, social payments are indexed at the beginning of the year and money is transferred to the regions, emphasized Natalia Milchakova, a leading analyst at Freedom Finance Global.
Accelerated spending of state funds increases the money supply and domestic demand. In conditions of staff shortage , this puts additional pressure on prices and may weaken the effect of the key rate, said Olga Belenkaya, head of macroeconomic analysis at Finam.
Also important for inflation is the statistics on budget revenues - they are growing, but not so much due to the write-off of debts on budget loans to the regions, says Vladimir Klimanov, Director of the Center for Regional Policy IPEI Presidential Academy. This, in turn, also puts additional pressure on price growth.
If the similar growth rate of budget expenditures continues, inflation is unlikely to fall below 9.5%, despite any level of interest rates, believes Andrei Barkhota. Moreover, in the segment of food products the price index will be double-digit, and in industries with high dependence on imports inflation may exceed 25%.
According to Rosstat, inflation in the Russian Federation at the end of January has already exceeded 10% in annual terms.
-The impact of accelerated financing of January's federal budget expenditures is likely to influence the Bank of Russia's decision and motivate it to at least maintain the rate, " says Alla Chalova.
According to Andrei Barkhota, taking into account the budget data on February 14, the regulator may even raise the key rate by 2 p.p. from the current 21%.
It may increase to 22%, predicts in turn, economist Alexei Krichevsky.
At the end of the year, the deficit of the treasury is likely to exceed the plan, says Alla Chalova. The main factors are record expenditures on national defense, social policy and servicing of public debt, which will become more expensive against the background of rising interest rates.
Natalia Milchakova from Freedom Finance Global predicts that at the end of the year the budget deficit may be within 0.6% of GDP, i.e. slightly higher than the 0.5% expected by the Ministry of Finance.
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