No revisiting of Russian budget in Duma spring session

BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/16

Prime minister Dmitri Medvedev announced in his annual speech to the lower-house Duma that the government has no plans to modify this year’s federal budget during the current Duma term, which runs until September. This year’s federal budget is based on average oil price of $50 a barrel. It entails a deficit of 3 % of GDP (2.4 trillion rubles) according to president Vladimir Putin’s instructions. The average price of Urals-grade crude oil to date has only averaged $33 a barrel this year. By various estimates, the federal budget deficit could reach 4–5 % of GDP if the price of oil stays in the range of $35‒40 a barrel and the budget remains unadjusted. The first-quarter budget deficit equalled 3.7 % of GDP. Earnings from oil and gas fell visibly below budget projections, but other revenue and spending performance went approximately as planned.

The finance ministry has compiled a revised version of the budget that assumes an average oil price of $40. The deficit would be squeezed to around 3 % of GDP by e.g. spending cuts and increasing income from privatisation sales. Such measures, however, now seem to be off the table at least until next autumn. Some extra income will come from the recent amendment requiring state-owned enterprises to give at least half of their last year’s profits to the state. The move is expected to bring 100 billion rubles of additional budget revenue this year.

The current plan is to cover most of the federal budget deficit with money from the Reserve Fund, which held 3.4 trillion rubles ($50 billion, 4% of GDP) at the end of March. Russia also has the National Welfare Fund, which currently stands at around 5 trillion rubles (about two-thirds is in the form of highly liquid assets).

Russia’s government debt corresponds to about 14 % of GDP. This year the state has issued roughly 250 billion rubles in domestic bonds. Issuance of bonds abroad has been under consideration, but there has been difficulties in finding banks willing to arrange issues due to economic sanctions.

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