OREANDA-NEWS. August 12, 2010. The Finance Ministry released Federal Budget execution figures yesterday for 7M10, revealing a deficit of RUb539bn (2.2% of GDP). In July the deficit was 3.9% of GDP, reported the press-centre of OTKRITIE Financial Corporation.

View: According to the fiscal plan, the deficit should expand from 2.2% of GDP in 7M10 to 5.4% GDP for FY10. While the budget plan assumes virtually flat average monthly revenue in the remaining months of 2010 (adjusted for one-offs), which we believe is rather conservative, spending is set to accelerate substantially.

The spending plan assumes that in August-December on average the monthly budget spending will be 33% higher than during 7M10, or 22% more than in July. This represents a smaller year-end spending acceleration compared with 2007-2009, but if the spending plan is implemented, acceleration in spending will total more than 1 trillion rubles over the rest of 2010. We believe that growth in the fiscal deficit will put pressure on the ruble exchange rate at year’s end, and spur CPI growth. However most likely it will contribute to next year’s inflation.

The fiscal figures also show that even though in July oil exports duties were down ~15% in dollar terms compared to June, revenue collected by customs service was up 7% MoM. In our view this hints at a further acceleration of imports growth which increases the vulnerability of the country’s Balance of Payments, and raises its dependency on oil prices.