Russian Premier Sees Budget Danger Rising From Dramatic Oil Drop

  • Oil slump creates risk for budget, which is based on $50 crude
  • Medvedev says Russia must cut inefficcient government spending

Russia’s budget is facing substantial risks from any further oil-price decline as crude is trading at a 12-year low, Prime Minister Dmitry Medvedev said Friday.

“The dramatic movement of oil prices that we have seen in the past weeks, especially in the last few days, creates rather serious risks for the budget,” Medvedev said at a government meeting near Moscow. “A further decline in oil prices can’t be ruled out.”

The Russian government, which approved its 2016 budget based on oil at $50 a barrel, now faces a desperate need to raise additional revenue and cut costs as crude trades near $30 amid a global glut. With oil and natural gas contributing almost half of budget revenue, the Finance Ministry is calling for spending cuts equivalent to about 500 billion rubles ($6.4 billion). The country may burn through its $50 billion Reserve Fund -- which dropped 16 percent last month -- as early as this year if no measures are taken, Finance Minister Anton Siluanov said Wednesday.

Oil is sliding for a third week on anticipation of Iran exports adding to the supply glut. The ruble weakened 21 percent against the U.S. dollar in the past three months, the third-worst performer among 24 emerging-market currencies tracked by Bloomberg. While crude may fall to any level in the short term, a drop to below $20 a barrel is unlikely, Russian Energy Minister Alexander Novak told RBC television, according to the ministry’s Twitter account on Friday.

The spending cuts exclude the military and social services. Competing priorities are pulling at the government as Russia carries out a bombing campaign in Syria, its first military foray outside the former Soviet republics in three decades. The government in October rolled back plans to reduce the defense program for this year.

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