Finance Minister sees Russia’s 2014 budget deficit at 0.7% of GDP

MOSCOW, Dec 26 (PRIME) -- Russian state budget deficit will stand at 0.7% of the gross domestic product (GDP) in 2014 after the government boosts capitals of the country’s banks by 1 trillion rubles, Finance Minister Anton Siluanov told reporters Friday.

“We will finish this year with a net surplus of 0.7% of GDP, or 575 billion rubles, if we do not include operations to inject capital into banks. And if we do include this operation, it will be a 0.7% deficit,” Siluanov said.

In fact, the increase of banks’ capitalization to shield them from the sanctions through issuing fixed-rate state OFZ bonds will not result in additional expenses, Siluanov said.

The ministry will replenish the reserve fund by 250 billion rubles in 2014, the minister said. He said earlier that low oil prices may make the government unable to refill the budget.

The Finance Ministry is currently preparing a new budget plan for 2015, including a U.S. $60 per barrel oil price and the ruble rate standing at 51 per U.S. dollar.

It will be not enough to cut budget spending by 10% in 2015, and the Finance Ministry will ask for more decisive steps in January.

“Sure, this 10% cut is not enough to balance the budget and we have proposals on the further measures we must take. We will have to discuss them and to define what we will do at the beginning of next year, either it will be further optimization, budget trims, or digging deeper into the Reserve Fund,” Siluanov said.

It would be wrong to severely cut spending, this would contradict the principles of anticyclical economic policies: when there is a downturn, investments must rise to stimulate recovery, he said. To cope with the budget restrictions because of cheap oil, spending growth must stand at 4-5% in 2015 instead of 11.7% as stipulated in the budget plan.

Defense spending, which stands at one third of Russia’s budget, is too high, it can be redistributed in favor of infrastructure and education spending. The number of law enforcement officers in the country is way too high, Siluanov said.

Further reforms are needed to balance the pension system until 2025, he said. It must become fully self-sufficient, he explained.

The government will have a 190 billion ruble anti-crisis fund at its disposal next year, and the fund might be raised, the minister said.

The budget will have a net surplus by 2017, if oil prices rebound to $70 per barrel, Siluanov said.

(52.6159 rubles – U.S. $1)

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