Russia Faces Widening 2014 Budget Deficit, Siluanov Says

Russia’s federal budget deficit will probably widen next year more than previously planned as a weaker economy risks erasing 650 billion rubles ($20.8 billion) in revenue, Finance Minister Anton Siluanov said.

The shortfall will stem from reduced oil and gas revenue as well as a drop in other earnings, Siluanov told reporters today at the lower house of parliament in Moscow. Spending plans already set in the three-year budget for 2014 and 2015 won’t be reduced, meaning the deficit will probably increase, he said.

The economy of the world’s largest energy exporter, which counts on income from oil and gas sales for about half of the budget’s revenue, is expanding at the weakest pace since a 2009 contraction. Weakening growth is hurting tax intake this year, which may keep the government from sending planned extra revenue to the Reserve Fund, Andrei Makarov, a lawmaker with the ruling United Russia party, said at a hearing today.

“The forecast we adopted indicates lower budget revenue, because economic growth and the volume of imports are revised downward, while the ruble’s exchange rate is seen stronger,” Siluanov said.

Some of the shortfall will be covered by conditionally approved expenses, which can be curtailed in the event of a revenue shortfall, he said. The ministry’s proposals on the main parameters of the next three-year budget may be ready by June, he added.

Urals crude, Russia’s main export blend, has averaged $107.51 a barrel this year, compared with $110.26 in 2012, according to data compiled by Bloomberg. The ruble has weakened 1.3 percent against the central bank’s basket of dollars and euros to 35.3103 as of 1:26 p.m.

Fiscal Gap

The federal government run a deficit of 0.4 percent of gross domestic product through the first four months, compared with a balanced budget last year, according to the Finance Ministry. This year’s budget was approved with a shortfall of 0.8 percent of GDP, with the 2014 gap projected at 0.2 percent of GDP, according to the law approved in December.

Policy makers are trying to ease the budget’s reliance on oil revenue by sending earnings above a certain crude price to the country’s sovereign wealth funds.

Russia will probably require an average Brent oil price of $117.8 a barrel this year to balance its budget, the fifth straight year it’s needed crude above $100 and compared with break-even prices of $90.3 for Saudi Arabia and $65 for Kazakhstan, Deutsche Bank AG said in a May 10 report.

Fivefold Increase

Russia has seen a more than a fivefold increase from 2006, when it needed Brent to average $21.4, according to Deutsche Bank. Brent is the benchmark used to price more than half of the world’s oil, including Urals.

Finance Ministry officials are meeting with one of the main international credit-rating companies this week to discuss Russia’s fiscal projections, as well as policy plans, Siluanov told reporters. He said he didn’t expect an upgrade to Russia’s rating immediately and declined to identify the company.

Moody’s Investors Service, the only company that didn’t downgrade Russia during the 2008-2009 global financial crisis, affirmed the country’s sovereign debt grade at Baa1, the third-lowest investment grade, in March. The outlook is stable.

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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