15:03 May. 6, 2016
President Vladimir Putin is challenged to manage era of thrift with economy in pieces and muted oil prices
If the Russian government's in-house forecaster is right that muted oil prices are here to stay, budget deficits will stretch to the end of this decade, according to a Bloomberg survey of analysts. Under the Economy Ministry's projection that oil will average USD 40 a barrel through 2019, the analysts predict revenue won't match spending until 2020 or later.
The challenge for President Vladimir Putin is to manage an era of thrift with the economy in pieces and elections looming this year and in 2018. A period of entrenched deficits that's without precedent during Putin's 16 years in power means the government would have to tread carefully to avoid busting the budget after oil's collapse.
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The government ran a deficit of 2.4 percent of GDP last year and wants to keep the shortfall to 3 percent in 2016 at an average oil price of USD 40 a barrel. The nation's main export blend Urals averaged USD 33.93 in the first four months of the year. The government has delayed to the fall amending this year's budget, which is still based on an average oil price of USD 50 a barrel.
Russia's non-oil deficit, the shortfall excluding revenue from the energy industry, was at 11 percent in the first half of last year, the widest in a decade. That's above a level Finance Minister Anton Siluanov has called "critical."
Oil and natural gas account for about a third of Russia's budget revenue and almost 60 percent of its exports. As crude rebounded, the ruble has gained about 11 percent against the dollar this year after a 20 percent loss in 2015.
Nothing will benefit the economy as much as the government shutting off the taps, according to the poll. Forty-one percent of respondents said hurrying up with budget consolidation is the single biggest step it should take to boost growth. That was followed by 17 percent supporting a sell-off of big state companies.
"The possibility of a medium-term fiscal stimulus will be limited," said Bence Andras, an economist at OGResearch in Budapest. "In addition, although we assume that Western sanctions will be lifted in 2017, economic ties will not be normalized immediately, so the sanctions will have a lingering medium-term effect on Russia's potential growth even after their cancellation."