Russian budget deficit to exceed 3% of GDP with oil below $40/bbl

MOSCOW, Mar 17 (PRIME) -- The Russian budget has not adjusted to new economic conditions yet and deficit will exceed 3% of Gross Domestic Product (GDP), if an average oil price stands below U.S. $40 per barrel in 2016, Finance Minister Anton Siluanov said at a meeting with students of the Financial University on Thursday.

“The balance of payments has adjusted, the exchange rate has changed, the current account, exports, imports have changed. Is it enough or not? Of course, we have to adjust more, the budget has not adjusted to new conditions yet,” Siluanov said.

It is very difficult to adjust the budget because the state had undertaken a lot of social liabilities and approved a range of new programs when the oil price stood at $100 per barrel.

The Russian budget deficit amounted to 2.4% in 2015, is likely to stand at 3% of GDP in 2016 if the oil price stands at $40 per barrel, and may be higher with oil below $40, the minister said.

A high budget deficit creates excessive liquidity in the country, and the central bank has to raise the key rate, while when a country has a balanced budget, the central bank cuts interest rates, Siluanov said.

Russia has two ways to fight excessive liquidity: the central bank may mop it up, its net profit will fall sharply and the authorities will have to balance the central bank, or budget deficit may be decreased putting the money supply under less pressure.

And moreover, the central bank cannot absorb excessive liquidity in full, and may increase the key rate that will limit lending and economic growth, the minister said.

The central bank may increase the key rate if risks and large deficits remain, and the Russian government is seeking to balance budget deficit in the coming years in order to create conditions for key rate cuts.

The Russian government still plans no budget deficit for 2017–2019, Siluanov said.

Earlier on Thursday, former Finance Minister Alexei Kudrin said that Russia’s deficit may reach 5.5% of GDP in 2016.

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