Fiscal and monetary coordination under budget stress: Deficit modeling, ruble exchange rate forecast, and hypothetical purchases of OFZs by the Bank of Russia
Igor' V. KOSTIKOVNational Institute for Financial Markets and Governance, Moscow, Russian Federation ikostikov@yahoo.com ORCID id: not available
Subject. Fiscal and monetary coordination in Russia is under budget stress in early 2026, accompanied by a significant increase in the federal budget deficit amid declining oil and gas revenues and a strengthening ruble. Objectives. To assess the extent to which the combination of oil prices and fundamental macroeconomic factors can offset the budget shock of 2026. Within the framework of the work, the tasks of analyzing theoretical models of the interaction of fiscal and monetary policy, forecasting the ruble exchange rate and conducting a scenario analysis of the sensitivity of the budget deficit to changes in oil prices and the exchange rate are solved. Methods. The research is based on the concepts of the Dutch disease, the fiscal theory of the price level and the theory of budgetary rules. A modified behavioral equilibrium exchange rate approach is used to predict the exchange rate, taking into account the stable balance of payments surplus and operations with foreign exchange assets of the National Welfare Fund. Budget effects are estimated using a formalized model of the sensitivity of oil and gas revenues to changes in oil prices and the exchange rate. Results. It is shown that even with moderate oil prices, fundamental factors are able to support the ruble exchange rate in the range of 75–85 RUB/USD, whereas with prices rising to 95 dollars/bbl. It is possible to strengthen up to 70–75 RUB/USD. The additional oil and gas resource may range from 1–1.4 trillion rubles to 3.8–4.1 trillion rubles, which makes it possible to keep the federal budget deficit close to the target level while controlling costs. The results of the study can be used in the formation of macroeconomic forecasts and the development of parameters of fiscal and monetary policy. Conclusions. The limited operations of the Bank of Russia in the government bond market, subject to institutional constraints and complete sterilization of liquidity, may be compatible with the inflation targeting regime and do not lead to a transition to fiscal dominance.
Keywords: federal budget deficit, oil and gas revenues, Urals crude oil price, exchange rate, equilibrium exchange rate
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