Russia Sees Wider Budget Gaps in Next Two Years as Economy Slows

Russia’s fiscal deficit will be wider than previously planned in the next two years as slower economic growth curbs budget revenue in the world’s biggest energy exporter, the Finance Ministry said.

The shortfall will reach 0.5 percent of gross domestic product in 2014 and 1 percent in 2015, compared with earlier estimates for a 0.2 percent gap next year and a balanced budget 12 months later, the ministry said today in materials prepared for a cabinet meeting. This year’s deficit forecast was cut to 0.7 percent from 0.8 percent, it said.

Russia is grappling with its steepest slowdown since a 2009 recession, with second-quarter GDP rising 1.2 percent from a year earlier and the Economy Ministry cutting its 2013 growth forecast last month to 1.8 percent from 2.4 percent. Income-tax revenue fell 20 percent from a year earlier in the first eight months, Finance Minister Anton Siluanov told a Sept. 12 government meeting.

“The increase in the deficit estimate is due to some lowering of the growth forecasts and some increase in spending,” Vladimir Osakovskiy, chief economist for Russia at Bank of America, said today by phone from Moscow. The 300 billion-ruble ($9.3 billion) net increase in next year’s shortfall “will most likely be financed by domestic borrowing.”

Stocks Trail

Russian stocks are underperforming their peers, with the dollar-denominated RTS Index down 6.4 percent this year compared with a 5.5 percent drop for the MSCI Emerging Markets Index. The ruble has weakened 5.5 percent against the dollar in 2013, compared with 8.8 percent for the Brazilian real and 13.2 percent for the Indian rupee.

Russia needs to cut budget spending in areas excluding pensions, welfare and debt servicing by as much as 5 percent in 2014-2016, Prime Minister Dmitry Medvedev said last week. Revenue will reach 13.6 trillion rubles next year and 14.5 trillion in 2015, while spending will total 13.98 trillion and 15.4 trillion, according to the Finance Ministry.

The ministry made the biggest revision to its estimates for revenue from state asset sales. Proceeds are planned at 197 billion rubles next year, down from 331 billion rubles, and 159 billion rubles in 2015, down from 595 billion rubles. The 2016 sale of a 19.5 percent stake in the nation’s biggest oil producer, OAO Rosneft, will generate 423.5 billion rubles, the ministry forecasts.

Delays in Russia’s privatization program are being caused by “the energetic lobbying of individual agencies and individual officials,” Medvedev said in June.

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