Budget rule
The budget rule is a fiscal mechanism determining how much the state can spend from oil and gas revenues and how much to allocate to the National Wealth Fund.
Contents
What is the budget rule
The budget rule is a fiscal mechanism that determines how much the state can spend from oil and gas revenues and how much to allocate to reserves (the National Wealth Fund). It protects the economy from fluctuations in commodity prices and strengthens the country's financial stability.
How the budget rule works
- Cutoff price — a base oil price is set (for example, $59 per barrel of Urals).
- Windfall revenues — if the actual oil price exceeds the base, extra funds do not go to current spending.
- Accumulation — the Ministry of Finance sends windfall revenues to the National Wealth Fund.
- Deficit coverage — if prices fall below the cutoff, accumulated reserves cover the deficit.
Impact on the ruble exchange rate
- At high oil prices — the Ministry of Finance buys currency, strengthening the ruble.
- At low oil prices — sells currency, restraining the ruble's fall.
Current changes
In 2023-2026 the rule is changing: reviewing the currency component, discussing reducing the cutoff price, and discussing a transition to ruble operations.
The budget rule and social obligations
Part of windfall revenues is directed to social programs. Regional budget rules establish spending limits.
Frequently asked questions
What is the budget rule in simple words?
The budget rule is a financial safety cushion for the country. At high oil prices the state saves part of the income in the National Wealth Fund; at low prices it uses the savings to fulfill obligations.
How does the budget rule affect the ruble exchange rate?
It smooths fluctuations: the Ministry of Finance buys currency at high oil prices (strengthening the ruble) and sells at low prices (restraining the fall).
How is the budget rule related to subsidizing?
The rule determines the volume of funds for subsidizing. The higher the cutoff price and savings, the more opportunities for support programs.
What is the cutoff price in the budget rule?
It is the base oil price set in the budget (e.g. $59 per barrel of Urals). Above it — windfall revenues go to reserves; below it — the deficit is covered from reserves.
Will the budget rule be abolished?
No, but its parameters are periodically revised. A transition to a structural balance rule is being discussed for 2023-2026.
How is the Stabilization Fund different from the National Wealth Fund?
The Stabilization Fund was created in 2004. In 2008 it was split into the Reserve Fund and the National Wealth Fund. Since 2018 all funds are consolidated in the NWF.
How does the budget rule affect inflation?
Indirectly through the money supply and the ruble exchange rate. Currency purchases at high oil prices strengthen the ruble and restrain inflation.
Other terms in «Government»
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Budget rule
The budget rule is a fiscal mechanism determining how much the state can spend from oil and gas revenues and how much to allocate to the National Wealth Fund.
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