BOFIT Weekly Review 2015/50
Low oil prices challenge Russian government finances
The houses of the Russian parliament (Duma and Federation Council) during the past two weeks approved the draft 2016 federal budget. In its decisive second reading of the bill, the Duma reallocated about 2 % of the total spending to other categories, including e.g. new spending to remodel or replace dilapidated school buildings.
As in previous years, the government’s draft of total federal budget expenditures and revenues was accepted as is. Thus, revenues (measured in nominal rubles) are set to rise 3.7 % from this year’s current budget estimate. Revenues from taxes on oil & gas will increase by less than 3 % if the assumption holds that next year the average price of Urals crude will be $50/bbl and the ruble’s exchange rate 63.3 rubles to the dollar. Other revenues will increase nearly 4.5 % if GDP grows 0.7 %. The federal budget deficit would then amount to 3 % of GDP, i.e. the maximum deficit size that president Putin has said he would accept.
While the parliament considered the budget bill, finance minister Anton Siluanov noted that the recent drop in oil prices threatens the budget. Siluanov said federal budget revenues at the current low oil price and ruble exchange rate would undershoot the freshly approved budget revenue projection by an amount equivalent to roughly 2 % of GDP. In that case, the finance ministry would call for spending cuts. If further cutting amidst lower revenue would not be made, the Reserve Fund would not be sufficient to finance the deficit until the end of 2016.