Russian Government Considering 10 Percent Budget Cut

The Russian Federation plans to start the year by again making budget amendments including a 10 percent spending cut due to the sharp decline in oil prices and the economic recession, Reuters reported.

According to their sources, after a meeting with the Russian Prime Minister, Dmitry Medvedev, it was decided to adjust approved spending to 90% of the previously approved amount.

"We have the minutes from the meeting. According to it, government offices are required to create new budget proposals that reduce their budgetary obligations by 10% by January 15th,” as reported by a representative of the agency.

According to him, the 10% spending cut will not impact public and regulatory obligations, the salaries of state employees or payments of stipends to military personnel.  The Government estimated that the budget reductions will allow Russia to save nearly RUR 700 billion.

According to the source, if the government offices do not reduce the budgets as directed, the Ministry of Finance will do it for them. "After this, the process for changing the law regarding the state budget for 2016 will be started, as budget appropriations can only be reduced by the law,” a top official said.

The budget for 2016 is calculated on the basis of the annual average price of Ural oil at $50 per barrel, the average ruble exchange rate of 63.3 per $1 and economic growth of 0.7%. Thus the Russian Bank increased the official dollar rate as of the 12th of January by RUR 3.02 to RUR 75.9507. The official rate of the U.S. currency reached its peak and exceeded the rate of RUR 75 for the first time since 1998.

It is notable that the Brent benchmark for oil decreased by 12% in the first six trading days of 2016.  Tom Levinson, the chief of Sberbank CIB and currency market and interest rate strategist, believes that oil prices will remain low for a long period of time.

In early December, Anton Siluanov, Minister of Finance for the Russian Federation, estimated that the loss of revenues in 2016 due to current oil prices and the rate of the ruble may be around 2% of GDP. Earlier the Minister predicted the loss of revenue caused by oil prices and currency rates to be about 1 trillion RUR.

  Russia, Economic Crisis, Budget Cuts, Medvedev