28.03.2012, 17:49:55

The building of the Ministry of Finance of the Russian Federation. Photo by RIA Novosti, Roman Galkin

Get off the needle

Officials will try to protect the budget from fluctuations in oil prices

The Ministry of Finance has developed budget rules, the purpose of which is to protect the state treasury from fluctuations in oil prices and create a “safety cushion”. The fundamental decision to introduce a new system has been made, and officials are arguing only about the details. Budget discipline proved its effectiveness in 2008-2009, and in the run-up to a new crisis it can be very useful.

Only the lazy have not spoken about the dangers of the Russian budget's dependence on the "oil needle" lately. 2011 and the beginning of 2012 turned out to be more than successful for the Russian budget - energy prices on world markets jumped to record levels, first against the backdrop of the civil war in Libya, and later due to the imposition of an embargo by the European Union and the United States on oil supplies from Iran. Some of the economic downturn observed in Europe and the United States has not been able to stop the rise in fuel prices.

Over the past 10 years, the dependence of the Russian budget on oil and gas revenues has been constantly growing. Thus, in 2000, their share in total federal budget revenues was only 20 percent, and by 2011 the figure increased to almost 50. Currently, the export duty on Russian oil and petroleum products is calculated using the formula “60-66”. The calculation base is the cost of energy resources published by Reuters. As a result, there is a direct connection between the price of oil on the world market and the size of the duty, and, accordingly, budget revenues.

No one can say for sure how long oil can hold out at current levels of $110-120 per barrel. Energy prices may go down when there is at least temporary calm in the Middle East, or they may collapse due to another global recession. According to the Ministry of Finance, if the price of a barrel of oil falls to $60, the country's budget deficit will be about 5.4 percent of GDP. In other words, a “hole” of almost 3.2 trillion rubles is being formed in the treasury, which, for comparison, exceeds the entire defense budget of the country.

Kudrin's scheme

In 2004-2007, the Russian budget was subject to a rule according to which oil and gas revenues used to finance expenses were limited to a certain percentage of GDP. Everything that the state managed to earn above this percentage was reserved. The then Minister of Finance Alexei Kudrin was repeatedly criticized for not directing the “stored” money into the economy, but in the future this policy justified itself.

The 2008-2009 crisis led to a fall in oil prices. By the end of 2008, prices dropped to $40 per barrel, and the government began to compensate for the budget deficit using existing reserves. The balance of oil and non-oil revenues in the state treasury was upset, and budget rules were abolished. Oil and gas revenues began to be spent almost entirely. In 2008, the volume of the Reserve Fund was more than four trillion rubles, and in 2010 - only 775 billion.

Despite rising oil prices in 2011, the budget continued to run a deficit. Thus, for 2012 it is balanced based on a forecast of $100 per barrel of oil, and its planned deficit is 1.5 percent of GDP. Throughout 2011, talk continued about the need to limit government spending. Not only Alexei Kudrin, who was fired in September 2011, actively advocated for this, but also his successor as head of the Ministry of Finance, Anton Siluanov .

Siluanov's scheme

At the end of January 2012, the new Russian Finance Minister said that the average price of Russian oil over the past ten years was $70 per barrel. At the same time, he suggested that it was from this price that the federal budget should be made up. Later, the idea of returning to the budget rules in force before 2008 was supported by Russian presidential aide Arkady Dvorkovich . According to business media, Prime Minister Vladimir Putin and President Dmitry Medvedev are also in favor of introducing budget discipline , and only the details of the new rules remain to be agreed upon.

Money for stability

The Stabilization Fund was disbanded in 2008 and divided into the Reserve Fund and the National Welfare Fund. The first inherited most of the functions of its predecessor, namely protection against fluctuations in oil prices. The second is used to finance social expenditures, primarily the payment of pensions. In 2008, the volume of the Reserve Fund was 4.03 trillion rubles, in 2009 it decreased to 1.831 trillion. In 2010, the fund reached a minimum of 775 billion, and in 2011 it grew to 812 billion rubles. According to calculations by the Ministry of Finance and the Bank of Russia, by the end of 2012 the Reserve Fund will grow to 2.379 trillion rubles, and in 2014 it will exceed the pre-crisis level and reach 4.118 trillion. As of March 2012, the size of the fund is 1.8 trillion.

In March, the Ministry of Finance submitted a corresponding draft to the government. According to the department's forecasts, over the next ten years the average price of a barrel of oil will be $90 per barrel. The Ministry of Finance proposes to make this figure a “cut-off price.” Based on it, budget expenditures will be planned, and officials intend to allocate everything that will be earned from oil exports in excess of what was planned to the Reserve Fund.

It is proposed to use the reserved funds to finance the budget deficit in the event of a fall in energy prices. The new budget rules should be fully operational in 2016. Until then, federal budget expenditures are planned to be tied to the “cut-off price” of $90 gradually. Since 2013, it has been proposed to fix the bar at $97 per barrel, in 2014 - $95, and in 2015 - $92.

According to the Ministry of Finance's calculations, the budget deficit in this case will amount to 1.6 percent of GDP in 2013, 1.2 percent in 2014, and one percent of GDP in 2015. Thus, the Ministry of Finance proposes to abandon the idea of reducing the budget deficit to zero by 2015, previously voiced by the Prime Minister. Instead, officials consider it necessary to fill the national wealth fund and pay off debts on government bonds.

Economists' answer

The Ministry of Economic Development opposed the rules developed by the Ministry of Finance. True, the department’s dissatisfaction was caused more by the details than by the principle itself. Deputy Minister Andrei Klepach said that the Ministry of Economic Development does not agree with the proposed project. Among the shortcomings of the rules, he named the “downward trajectory” in the Ministry of Finance’s calculations, but noted that “budget rules are needed.” Klepach added that discussions on this issue are ongoing.

Former Finance Minister Alexei Kudrin, now acting as an expert, on the contrary, supported the proposed project. In his microblog on Twitter, he called the cut-off price of $90 “acceptable,” noting that the cost of hydrocarbons on the world market over the past five to seven years has been “abnormally high.” He also said the government's spending plans were "not realistic" and that they would require oil prices above $120 a barrel.

According to the Kommersant newspaper, the government is also considering an alternative project for limiting budget expenditures, developed by Strategy 2020 experts. In their opinion, already this year the country’s main financial document must be based on the oil price forecast of $63 per barrel, and next year - at $70. This approach can reduce budget costs by 15 percent.

The World Bank, which published a report on the state of the Russian economy on March 27, calls not to overestimate oil and gas revenues. According to the organization's calculations, the average annual price of Russian oil in 2012 will be less than one hundred dollars per barrel, and by 2015 it will decrease to $93.9. The World Bank proposes to begin budget reform “as quickly as possible.” But at the same time, the study notes that the government will not be able to reduce the impact of oil exports on the Russian economy soon. This requires “structural reforms and an improvement in the business climate,” and this is not a quick path.

Kirill Sugrobov

Get off the needle

Kudrin's scheme

Siluanov's scheme

Economists' answer

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Lenta.ru: Economics: Get off the needle