Parameters of pessimism

The government changes the 2009 budget

The Lunar New Year has not even begun yet, and the Cabinet of Ministers is already forced to adjust the budget. Until yesterday, the government was guided by a budget scenario with inflation of 10-12%, an average annual rate of 31.8 rubles. per dollar, the average annual oil price of $50 per barrel and the estimated global economic growth rate of 1.2%. Yesterday, at a meeting of the government presidium, Prime Minister Vladimir Putin was forced to change this scenario for the development of the domestic economy in 2009 to a more negative one.

“You know that the price of oil last week fluctuated around $41 per barrel. This is one of our main export goods, on which a lot depends, including in our macroeconomic policy: budget revenues and expenses are directly related to this,” the prime minister led his colleagues to the inevitable. He recalled that in good times (just in August 2008), the 2009 budget was calculated based on the oil price of $95 per barrel and 4% growth rates of the world economy. “So there is a need to adjust budget and macroeconomic indicators based on today’s realities of the world economy and the realities of the world market for basic goods,” Mr. Putin concluded.

The Prime Minister asked the Minister of Economic Development, Elvira Nabiullina, who is responsible for macroeconomic forecasts, to announce the unpleasant figures. She got so excited, counting the losses of the budget, which, in fact, had not yet begun to be properly implemented, that she confused the ruble with the dollar, saying that the exchange rate would be 35.1 dollars per ruble. But everyone already understood, without amendments, that we are talking about the fate of the ruble, and not the dollar.

But even before the government’s updated forecasts, market participants already believed in a significant increase in the world’s major currencies against the ruble this year. Since the beginning of the year, the Bank of Russia has already weakened the ruble against the bi-currency basket six times, yesterday by another 50 kopecks, to the level of 37.8 rubles. As a result, during the first week of trading, the dollar exchange rate increased by 12% - from 29.39 to 32.91 rubles, the euro exchange rate - by 5.7% - from 41.43 to 43.78 rubles. Market participants believe that the current value levels of these currencies in Russia will be updated more than once.

“We now propose to clarify the growth of the world economy and still take as a basis a rather pessimistic scenario for the development of the world economy, namely minus 0.3%. That is, a decline in the global economy - primarily based on new assessments of the development of the American economy. Our estimates are that it will be minus 2.6%, and in the eurozone - minus 2.2%. That is, we predict rather negative growth dynamics in the American economy and the eurozone,” Ms. Nabiullina sadly told the government presidium.

Oil also gives no reason for optimism. The Minister of Economic Development reported that over the 16 days of January, the price of a barrel of oil averaged $42.9. According to her, the price continues to fluctuate so much that all forecasts now differ significantly. Experts barely fit into the corridor from 30 to 80 dollars per barrel. The Ministry of Economic Development decided to be closer to the pessimists and set its average annual target for the budget at $41 per barrel. According to the minister, the low oil valuation is supported by forecasts for the consumption of “black gold” for 2009 made by OPEC and the International Energy Agency.

The inflation forecast for Russia has also worsened - its level is set at 13% per annum. Moreover, if during 2007 and most of 2008 high inflation was observed in conditions of real income growth, now prices will grow rapidly while income growth for the majority of the population slows down or even stops. Such an unfavorable combination will be observed for the first time in recent years.

“What if the price of oil changes for the better?” - Mr. Putin could not resist, deciding to add a little optimism to the bleak forecast. “The ruble could be stronger,” the country’s chief economist readily responded. “What about economic growth in Europe, since these countries account for more than 50% of our trade turnover?” - the prime minister was interested. “Forecasts vary greatly,” the minister again turned to disappointing statistics, “from zero to minus.”

“These are our estimates under such conditions. Of course, the exchange rate is regulated by the Central Bank, and much will depend on how the price of oil, as the main product of our export, will develop, and how the situation with the balance of payments will develop,” Ms. Nabiullina noted. And she added that based on the basic macroeconomic indicators set out above, it is necessary to adjust the expenses and revenues of the 2009 budget. The Prime Minister immediately gave such instructions to the Ministry of Finance.

At the end, Mr. Putin pleased Cuba with a loan of $20 million. He said that this step would benefit the Russian economy. It was difficult to understand why until the prime minister explained: “It is planned to use these funds to purchase Russian-made goods for Cuba.” And this was the most positive news that was heard at the meeting of the government presidium.

Vera KUZNETSOVA, Natalya ROMANOVA