Commodities | Emerging Markets | Europe | Fiscal Policy | FX
Fiscal rules are used in several commodity-exporting countries to avoid pro-cyclical fiscal policy. It can ensure that only a portion of revenues are spent, while the balance accrues into a sovereign wealth fund. Future generations can therefore benefit from the country’s resource revenues while long-term growth stability improves. Indeed, it mitigates oil revenue volatility by stimulating demand during downturns and by restraining it during booming times. For example, Norway has implemented a fiscal rule, which decouples government expenditure from oil price revenues. By contrast, government spending in Venezuela is highly correlated to the oil price.
Russia’s first fiscal rule was introduced in 2004 and has undergone many changes since then. From 2004 to 2007, the government targeted a balanced budget based on a fixed oil price of $20. From 2009 to 2012, the rule was removed to allow the government to implement sizable fiscal stimulus to fight the recession. From 2013 to 2014, the government targeted a 1% public deficit using a dynamic oil price based on the moving average from 2008. From 2015 to 2017, the rule was not appropriate to respond to the oil crisis and therefore was again not applied.
The current fiscal rule was implemented in January 2017 and included in the Budget Code in 2018. Initially, the rule required the government to target a balanced primary budget based on fixed oil revenues and an estimate of the non-oil revenues. The oil revenue threshold was initially calculated using an oil price of $40, stable oil production and an estimate of the USDRUB exchange rate. Every year, the $40 limit increases by 2% (the Fed’s inflation target) to keep the real value constant. The structural primary budget target has now been revised to -1% of GDP for 2018 and to -0.5% for 2019-2024.
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