The Russian government is sticking to its conservative assumptions for oil prices as it drafts the budget for the next three years, relying mainly on domestic borrowing to finance the deficit in order to preserve its rainy-day funds.
Oil prices are running above the government’s $40-a-barrel forecast, but growing supply from Libya, Nigeria and the U.S. “presents very serious risks,” Maxim Oreshkin, Economy Minister said Thursday at a government meeting discussing the outlines of the three-year fiscal plan. “Keeping the level of $40 per barrel in real terms over the next three years looks more than reasonable,” he said.
For next year, revenues are expected to be 630 billion rubles ($10.6 billion) higher that originally planned, but the government expects to use the bulk of that to reduce the deficit, which is targeted at 1.6 percent of gross domestic product, down from 2.1 percent forecast this year, Finance Minister Anton Siluanov told the session. Spending in 2018 is set at 16.2 trillion rubles, with revenues at 14.7 trillion.
The budget gap is forecast to narrow further to 0.9 percent in 2019 and 0.8 percent in 2020.
Siluanov said the government also aims to minimize the use of the rainy-day funds for deficit financing. Next year, spending from the funds will be half this year’s level, he said.
In place of that funding, net domestic borrowing will run at “a little more” than 1 trillion rubles a year in 2018-2020, while external debt issuance will remain at $3 billion annually, according to Siluanov. For 2018, another 623 billion rubles in deficit funding will come from extra oil-and-gas revenues carried over from this year, he said.
As a rule, any increases in spending will have to come from non-oil revenues, Siluanov said. Extra crude-related revenues will be saved in the government’s rainy-day funds.