Medvedev: Oil price slump threatens Russian budget

GORKI, Moscow Region, Jan 15 (PRIME) -- The current weakening of oil quotations to multi-year lows poses serious risks for the Russian budget, Prime Minister Dmitry Medvedev told the government on Friday.

The 2016 budget is based on an average oil price of U.S. $50 per barrel, but at present it is about $30 per barrel. Budget deficit is estimated at 2.36 trillion rubles, or 3% of the 2016 GDP. Revenues are expected at 13.738 trillion rubles and expenses at 16.099 trillion rubles.

“But the dramatic dynamics of oil quotations, which has appeared in recent weeks, particularly in the last few days, create very serious risks for the budget,” Medvedev said, adding that oil prices may fall further, especially when Iran enters the market.

The budget must be based on a narrow band of oil prices, Medvedev said. “First of all, we must understand which oil price forecast is the most realistic. I would say it is a great challenge. It is clear that it is not about a particular figure but about a band, which has to be narrowed maximally – as much as possible,” he said.

Budget spending must be decreased significantly and a range of projects must be abandoned or postponed, but support to well-performing branches will be kept or even increased.

“We will see which expenses must be decreased, and, unfortunately, the decrease must be more significant than it has been done recently. We just have to abandon or postpone some projects,” Medvedev said.

“This year we must focus on support of some industries and branches of the economy, particularly those which have a high potential of import substitution, positively influence the situation in general or at least some related branches.”

The government will increase state support to the car industry, the prime minister said. Russian authorities will provide 20 billion ruble subsidies to support demand for cars in January–June. The state support covers leasing, beneficial car lending, trade-in and scrappage programs.

BUDGET VIEW

Earlier in January Finance Minister Anton Siluanov said that the government will have to reduce budget spending by 10% this year. The ministry wants to cut the 2016 average oil price forecast from $50 to $40 per barrel.

Sergei Ryabukhin, head of the budget committee at the Federation Council, the parliament’s upper house, said that the government may soon submit draft adjustments to the 2016 budget to parliament and in such case parliament will consider them urgently.

Audit Chamber’s Director Tatyana Golikova said that there is no sense in adjusting the 2016 budget, which was adopted in December 2015, in January despite extremely low oil prices, because it has underlying strength.

Budget reserves not connected with particular expenses total 600-700 billion rubles, including 235 billion rubles, not used in 2015, 65 billion ruble anti-crisis aid for 2016, and 342 billion rubles worth of accumulative pension savings, which were frozen by authorities.

“I believe that we must pay special attention to intra-budget regulation, I will repeat it again, the way in which it was executed in 2015. Then our will to cut it ‘globally’ and sequestrate is likely to change,” she said.

(76.5230 rubles – U.S. $1)

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