Russian Finance Minister Warns of Wider Budget Deficit This Year

  • Finance Ministry estimates 2016 deficit at up to 3.7% of GDP
  • Bashneft, Rosneft sales planned in 2016; few seen in 2017

Finance Minister Anton Siluanov warned that the budget gap will be wider this year than earlier forecast, forcing Russia to step up the pace of domestic borrowing.

The deficit may widen to 3.5 percent to 3.7 percent of gross domestic product this year, beyond the earlier estimate of 3.2 percent, according to Siluanov. The government is pushing forward on sales of stakes in oil producers Bashneft PJSC and Rosneft PJSC in 2016, but has no major privatization proceeds in next year’s budget, he told reporters at a conference in the Black Sea city of Sochi on Friday.

Russia is clawing its way back from the longest recession of Vladimir Putin’s rule and running the widest budget deficit since 2010 after a slump in oil prices. The central bank has pinpointed delays in overhauling the economy and improving the business climate as the main hurdles for sustained growth, and policy makers signaled this month that above-target inflation has ruled out monetary easing this year.

Narrowing Gap

The ministry is sticking to its target of narrowing the gap to no more than 3.2 percent of GDP next year and about 1 percent in 2019, Siluanov said.

“A budget deficit is the same as taxes,” Siluanov said. “We take from the economy, withdraw money from banks, from financial companies that would work in the economy, which would lend to develop projects, we take that money out of the economy. It’s about the same effect as taxation.”

The government must align the budget and the capacity of the economy and keep the deficit from contributing to price growth, he said.

The Finance Ministry’s budget draft assumes oil will stay near $40 a barrel for the next three years and sets out to narrow the deficit by one percentage point a year to balance the books in 2020. Its proposals to cover the gap include a state-spending freeze, the sale of government assets and increased borrowing.

The ministry is ready to sell an additional 200 billion rubles ($3.15 billion) of debt on the domestic market this year, or 30 billion to 40 billion rubles a week through the end of this year, Siluanov said. That pace will be maintained next year, he said.

Russia’s local-currency debt rewarded investors with a 29 percent gain this year, the third highest in the Bloomberg Emerging Market Local Sovereign Index.

No Risks

The external borrowing limit may climb back to $7 billion after a decrease to $3 billion this year, Siluanov said. The central bank is taking that into account in its monetary policy, and there are no risks of greater pressure on the ruble, he said. After slumping 20 percent against the dollar last year, the currency has gained 16 percent in 2016, the second-best performance tracked among 24 emerging markets by Bloomberg after the Brazilian real.

State companies are forecast to pay out between 267 billion and 268 billion rubles as dividends to the budget in 2017, he said.

Proceeds from asset sales may drop to about 30 billion to 40 billion rubles next year, Siluanov said. The government has been considering a sale of shares in VTB Bank PJSC, Russia’s second-biggest lender, for 2017 and struck airline Aeroflot PJSC from its list. Sales of stakes in Bashneft and Rosneft may reap about 1 trillion rubles this year, after a stake in diamond miner Alrosa PJSC was sold for 52.2 billion rubles in July.

“The pie has become more dietetic, but it’s good in a certain sense, because we are all motivated to improve its quality,” Siluanov said about the leaner budget.

— With assistance by Anna Andrianova

    Before it's here, it's on the Bloomberg Terminal.