Russia risks higher budget deficit: FM
MOSCOW: Adverse oil prices and plans to save a mammoth state bank threaten Russia with an inflated budget deficit next year and leave little fiscal flexibility before the 2018 presidential election, Finance Minister Anton Siluanov said. With oil windfall revenues drying up rapidly, sanctions making borrowing on Western markets impossible. Meanwhile, foreign investment is shrinking, leaving Russia in line for a tough end of the decade, Siluanov told Reuters in an interview. “Russia is faced with a difficult choice in the medium term: either to drastically cut social spending, spending on education and healthcare, and at the same time leave tax rates unchanged, or follow a path of greater spending but raise some taxes,” he said.
“This is a difficult public dilemma - and an answer to these questions should be in the program of the next Russian president.” President Vladimir Putin, the country’s paramount leader since 2000, has not yet declared whether he will seek another term, but his popularity is at an all-time high after annexing Crimea and engaging in Syria. It is widely expected he will remain Russia’s leader until at least 2024.
The 2016 budget, due for its second reading in parliament this week, envisages a deficit of 3 percent of gross domestic product. However, oil prices are likely to come in at the lower end of the $40-$50-per-barrel range assumed for next year, and possibly lower, making a huge dent in state revenues, Siluanov said.
“(Oil below $40) is possible,” Siluanov said. A slowdown in global economic growth, ouster of Russian producers from oil markets, and Iran’s readiness to supply the world with crude, do not bode well for prices, he said. Urals, Russia’s chief crude blend, traded at $42.01 per barrel on Monday.
“You cannot live by the Russian faith in serendipity that suddenly everything will change, that oil prices will rise to the level from two years ago,” Siluanov said.
“They will not. And on the off-chance the situation improves to a certain extent, you still need to solve structural problems, get rid of imbalances.”
NO MONEY, NO OPTIONS
At current oil prices, budget revenues will fall short by some 1.2 trillion roubles ($18.29 billion) to 1.5 trillion rubles next year compared with what’s assumed in the budget, he said.
Plans to save state development bank Vnesheconombank, or VEB, which is facing a gaping hole in its balance sheet, may cost the state some $20 billion over the next few years, Siluanov had told Reuters previously.
At the same time, federal spending is set to increase by more than 600 billion roubles next year to 16.1 trillion rubles. “Next year poses huge risks,” Siluanov said. The deficit, now planned at 2.4 trillion rubles, will be almost entirely financed from one of Russia’s sovereign wealth funds, the Reserve Fund, which now stands at $65.7 billion rubles. If the budget deficit widens, the stash may dry up. The ministry is left with few options: try to improve tax collection, push for privatization of the country’s many state companies, including selling a stake in the oil major Rosneft , or try to tap foreign debt markets. —Reuters