The Ministry of Finance has prepared to pay for the government's decision to liquidate the autumn gasoline crisis. According to its forecast, oil and gas budget revenues in December will fall short of the baseline level of 137.6 billion rubles, and this will have to be compensated for by selling foreign currency and gold from the National Welfare Fund (NWF). The liquid portion of the fund stood at 4.16 trillion rubles as of November 1.

Because oil and gas revenues in November exceeded the Ministry of Finance's expectations by 14.1 billion rubles, it will sell 123.4 billion rubles worth of foreign currency in just one month (from December 5 to January 15), or 5.6 billion rubles per day. Currently, daily sales are at 0.1 billion rubles.

The Ministry of Finance's anticipated shortfall in oil and gas revenues is partly due to a law signed in late November that will reimburse oil companies for maintaining low fuel prices on the domestic market. Every month, the budget reimburses them tens of billions of rubles (sometimes over 100 billion rubles), a total of 824 billion rubles since the beginning of the year, to reduce the gap in profitability between domestic and export supplies (the so-called damper mechanism).

To qualify for the damper, exchange-traded gasoline prices must not rise too sharply. In September, they rose outside the specified range, resulting in no money for oil companies, while budget oil and gas revenues in October were 45 billion rubles higher than the Ministry of Finance expected. To stem the crisis, the authorities banned gasoline exports, changed the rules for calculating the damper, and promised to retroactively recalculate it for September. Analysts at Tverdyi Digits call the December shortfall a mirror image of the October situation.

Based on the November oil tax price of $44.9 per barrel announced by the Ministry of Economic Development, they estimate the "true" deviation of oil and gas revenues from the December baseline at 90-100 billion rubles. The remainder is due to the damper's compensation.

The total size of interventions will be even greater: the Central Bank is selling 8.9 billion rubles worth of foreign currency daily, offsetting last year's spending from the National Welfare Fund outside the budget rule. Taking these operations into account, the Central Bank's daily sales of foreign currency and gold (which handles all operations for the Ministry of Finance) will increase from 9 to 14.5 billion rubles per day, or by 61%.

This will support the ruble exchange rate, which businesses, officials, and bankers consider too strong. But they can do nothing about it. Finance Minister Anton Siluanov called for "learning to live and work" with the current exchange rate, arguing that it "may be maintained in future periods, as it is more or less balanced based on the current balance of payments."

The ruble failed to respond to reports of increased currency sales, according to Natalia Milchakova, leading analyst at Freedom Finance Global. It weakened in the morning, reflecting the lack of progress in Vladimir Putin's talks with Donald Trump's special envoy Steven Witkoff the previous day. It then corrected slightly, after which it remained stable. By the end of the day, it strengthened by 0.8%, closing even stronger than the previous day at 10.87 rubles per yuan. The official exchange rate had been set slightly earlier at 10.98 rubles per yuan and 77.96 rubles per dollar. After a certain respite, the ruble will begin to strengthen again, and a collapse to 90 rubles per dollar by the end of the year will most likely not occur, concludes Milchakova.

source: The Moscow Times https://archive.is/DMCGf