Cbank sees deficit of Russia’s 2016 budget at 3.6% of GDP

MOSCOW, Sep 16 (PRIME) -- Russia’s budget deficit will reach 3.6% of gross domestic product (GDP) in 2016, which is higher than 3.3% expected by the Finance Ministry, the central bank said in a report on Friday.

The regulator expects the deficit at 3.2% of GDP in 2017, 2.2% of GDP in 2018 and 1.2% of GDP in 2019. The Finance Ministry will have to keep budget spending flat in nominal terms to cut the budget deficit given conservative forecasts for the oil price of U.S. $40 per barrel.

The ministry may also use 2.3–3 trillion rubles from the Reserve Fund to cover the budget deficit in 2016, the central bank said.

Russia’s GDP may fall by 0.4–0.7% in July–September and 0.3–0.7% in 2016, the document read.

Under the regulator’s risks scenario of the oil price falling to $25 per barrel, the country’s GDP may contract by 1–1.5% in 2017, remain flat in 2018, and start to grow in 2019. In addition to that, the central bank will not be able to reach its inflation target of 4% in 2017 under the low oil price, but will reach it only in 2018.

Speaking of inflation, the central bank said that the strengthening of the ruble’s exchange rate contributed about 1 percentage points to annual inflation dynamics in August, while in May the contribution amounted to 2 percentage points.

The regulator’s optimistic scenario envisages the oil price growing to $55 per barrel in 2019 and maintaining the level further. The authority may start purchases of foreign currency to replenish reserves and may carry out a softer monetary policy under the optimistic scenario, it said.

But even under the optimistic scenario which sees the country’s GDP growing 0.5–1% in 2017 and 1.5–2% in 2018–2019, the Russian economy will not grow faster than 1–1.5% per year after 2019 due to structural limitations.

The central bank also said it expects the Urals oil price to fall to $40 in October–December from the current $43, but the forecast for the annual average Urals oil price for 2016 was improved to $40 from $38.

Talks of oil-producing countries regarding a freeze of oil output will not have a consistent impact on oil prices. It could become a significant factor only if the agreement is reached, which is very unlikely, the central bank said.

The bank also adjusted its forecast for Russia’s net private capital outflow to $14 billion from $25 billion in 2016 and to $18 billion from $25 billion in 2017. The outflow in 2018 and 2019 is expected at $25 billion per year.

According to the schedule of external debt redemption, banks and other sectors of economy may redeem about $90 billion of external debts in 2016, but the sum of actual payments is expected at about $15 billion, the regulator said.

The combined credit portfolio of the banking sector may grow by 4–6% in 2016 and 2017 and by 7–11% in 2018–2019 under the central bank’s baseline scenario.

(65.2170 rubles – U.S. $1)

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