Russia Weighs Spending Cuts as Siluanov Warns Oil May Fall More

Russia Finance Minister: We Must Cut Budget by 10%
  • Government prepares to cut budget outlays by 10% in 2016
  • Russia to also consider selling stakes in Sberbank, VTB

The Russian government is preparing to cut its 2016 spending, with policy makers considering a 10 percent reduction in non-priority expenditures to adjust to a "new reality” as oil prices are set to keep declining, Finance Minister Anton Siluanov said.

The budget situation is “difficult” and “it is impossible not to adjust” spending to the new terms, Siluanov said at Gaidar forum in Moscow on Wednesday. The deficit was 2.6 percent last year and this year’s cuts would spare priority areas such as the military and agriculture, he added. The government should revisit the idea of privatizing Sberbank PJSC and VTB Group, the nation’s two largest lenders, Economy Minister Alexei Ulyukayev said at the same conference.

The world’s biggest energy exporter is struggling to make up for the expected drop in budget revenue as the price of oil has tumbled below $30 a barrel for the first time in 12 years. The commodities rout compounded the effect of U.S. and European sanctions over Russia’s role in the Ukrainian conflict, which restrict its access to global financial markets. The 2016 budget is based on an average oil price of $50 a barrel.

“Our task now is to bring the budget in line with the new reality and if we don’t manage that, there will be a repeat of what happened in 1998-1999 when the population paid through inflation,” Siluanov said. The government sees 1 trillion rubles ($13 billion) of revenue from privatization over the next two years, he added.

The ruble strengthened 1.1 percent to 76.2050 against the dollar by 12:12 p.m. in Moscow, snapping a four-day slide. It declined 55 percent in 2014-15, more than any currency in the world except the Ukrainian hryvnia.

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