Plan 2020

Alexey Kudrin promises Russia long-term financial stability

Finance Minister Alexei Kudrin is confident that the changes to the budget system developed on his initiative and supported by the government and the State Duma will help maintain financial stability in the country for many years. “Under the most stringent scenario, stability is ensured until 2020, and under the base scenario - until 2030,” the minister told reporters yesterday, commenting on the draft budget law for 2008-2010 submitted to the government a day earlier by the Ministry of Finance. The Cabinet of Ministers will consider the document at a meeting on Thursday.

According to the minister, according to the base case, oil prices in the period from 2011 to 2030 will average $45.7 per barrel in 2005 prices. This will be quite enough to fulfill the state’s spending obligations and to replenish the Reserve Fund (its volume will be 10% of GDP), which will replace the current stabilization fund.

Almost all oil and gas revenues will be sent to the Reserve Fund, and from there a strictly defined by law portion - 3.7% of GDP - will flow into the budget and will be distributed among expenditure items. As Mr. Kudrin says, until 2014, oil and gas transfers are expected to be provided at the expense of current oil and gas revenues. However, beyond this period, according to today’s estimates of Ministry of Finance officials, the Reserve Fund and the Fund for Future Generations will have to be used (the “surplus” income from oil and gas exports should be sent there after the formation of the Reserve Fund in the amount of 10% of GDP). In this scenario, as the minister noted, the Future Generations Fund will be exhausted by 2019, and the Reserve Fund will be empty by 2030. At the same time, from 2030, oil and gas transfers will have to be reduced to 3.1% of GDP.

However, if the oil price is lower - $26.9 per barrel. (both options are forecast by the US Energy Information Agency) in 2005 prices, then the Future Generations Fund will be exhausted already in 2014, and by 2020 the Reserve Fund will also be reset to zero. At the same time, oil and gas transfer from 2020 to 2030 will gradually decrease from 3.7% of GDP to 1.7% of GDP. Then, apparently, Russia will get off the raw material needle, and a diversified economy will allow it to generate high incomes from non-resource sectors.

Commenting on the draft federal budget for 2008-2010 and the new Budget Code , the minister noted that the new strategy for using oil and gas revenues reduces risks to the budget after the 2008 presidential elections, but does not eliminate them completely, since the future government can always change the legislation if it wishes. However, Mr. Kudrin is confident that the new principles of budget policy will not be revised for at least five years.

Mikhail VOROBYEV