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Russia Faces Widening 2014 Budget Deficit, Siluanov Says

Russia faces a period of entrenched budget deficits through at least 2016 as a deteriorating economic outlook complicates plans to balance public finances a year earlier, Finance Minister Anton Siluanov said.

Budget shortfalls of 0.6 percent or 0.7 percent of gross domestic product “aren’t that worrying,” Siluanov told reporters today at a news conference in the Moscow-based ministry. “We’re maintaining our limits on spending.”

The fiscal gaps will stem from reduced oil and gas revenue as well as a drop in other earnings, Siluanov said today at the lower house of parliament in the Russian capital. Spending plans already set in the three-year budget for 2014 and 2015 won’t be reduced, meaning the deficit will 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 slowest 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.

Russia plans to borrow about 1 trillion rubles ($32 billion) “or a bit more” per year on the domestic market through 2016, while maintaining an annual cap on external borrowing at $7 billion, Siluanov said.

Practically Balanced

“We practically have a balanced budget,” he said. State debt as a percentage of GDP is forecast to remain at about 11 percent through 2016, he said.

The Finance Ministry plans to discuss ways to curb or delay some military spending with the Defense Ministry because of the worse fiscal outlook, according to Siluanov.

Russia’s economy is projected to grow 2.4 percent this year and 3.7 percent in 2014, down from earlier forecasts of 3.7 percent and 4.3 percent, the Economy Ministry said last month. The ministry also revised its ruble forecast to 32.1 per dollar from 33, which alone would wipe off 158 billion rubles in revenue from next year’s budget, according to Siluanov.

Next year’s budget may end up with 664 billion rubles less income than currently forecast, Siluanov said. He had earlier put the figure at about 650 billion rubles.

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, and the figures remain preliminary, he said.

Running Deficit

The federal government ran a deficit of 0.4 percent of gross domestic product in 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, which will probably narrow to 0.6 percent, Siluanov said.

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 2.5 percent against the dollar this year, to 31.1940 as of 5:42 p.m. in Moscow.

Tax collectors are doing “everything possible and impossible” to reach their revenue goals for the year, Siluanov said.

The 2014 budget deficit will probably widen to 0.6 percent of GDP from a planned 0.2 percent, and rise to 0.7 percent in 2015, when the budget was supposed to be balanced, Siluanov said. The first projection for the 2016 deficit indicates it may reach 0.6 percent, he added.

Added Instability

“In Russia, fiscal policy is pro-cyclical: when the oil price is up, government spending is up,” Odd Per Brekk, the senior representative for the International Monetary Fund in Russia, said at a conference in Moscow today. “In the last few years fiscal policy added to the instability.”

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. The Reserve Fund, which the ministry targets boosting to 7 percent of GDP, may actually fall relative to the size of the economy from the current level, Siluanov said.

The Reserve Fund may be 4 percent of GDP at the end of this year, less than the initially forecast level of 4.8 percent, Siluanov said. It may fall to 3.7 percent in 2014 and 3 percent in 2015, he said.

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.

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