UPDATE 1-Russian budget banks on firm oil prices

Mon Jul 9, 2012 2:42pm EDT

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* Budget break-even oil price to stay above $100
    * Revenue and spending projections cut by $10 billion in
2013
    * Oil price seen at $97 in 2013, deficit at 1.5 pct of GDP

    By Darya Korsunskaya and Jason Bush
    MOSCOW, July 9 (Reuters) - Russia's federal budget will only
balance if oil prices to hold above $100 per barrel until at
least 2015, according to a draft three-year budget seen by
Reuters on Monday.
    The budget arithmetic implies that despite efforts to rein
back spending, public finances will remain vulnerable to a fall
in international energy prices - the Achilles' heel of the
commodity-dependent economy.
    The budget plan incorporates generous promises made by
Vladimir Putin, before his election in March as president, to
increase public sector pay and social benefits, requiring steep
cutbacks in investments in infrastructure and education.
    Both revenue and expenditure projections have been cut by
around $10 billion in 2013, compared with the previous budget
plan. 
    Nevertheless, the budget's break-even oil price will decline
only gradually, to $105.4 per barrel in 2015, down from $116.2
per barrel in 2012.     
    The budget plan makes no changes to the government's
previous oil price forecasts, on which revenues are calculated.
It assumes an oil price of $97 per barrel in 2013, $101 per
barrel in 2014, and $104 per barrel in 2015.
    At these oil prices, Russia expects a deficit of 1.5 percent
of gross domestic product in 2013, falling to 0.1 percent of GDP
in 2015. Overall public debt would reach a modest 14.4 percent
of GDP by 2015.
    Global oil price are notoriously volatile and the budget
figures imply that a new fiscal rule, designed to base budget
planning on the long-run average oil price over preceding years,
will not be fully enforced until 2015.
    "The lack of clarity regarding the budget rule and the
multiple redrafting of the plan for expenditures are undermining
the Cabinet's overall credibility," Alfa Bank analysts said in a
note on Monday.
    Alexander Morozov, chief Russia economist at HSBC, noted
that the budget draft is the first time since 1998 that Russia
has revised down spending plans. 
    "From the fiscal stability and public debt perspective it is
definitely good news that positively surprised us," he said in a
note.
    However, Morozov warned that the plans to keep a tight grip
on spending would be hard to implement, and would only
moderately reduce the dependence of public finances on high oil
prices even if fully adopted. 
    London-based consultancy Capital Economics also expressed
fears that the new budget draft was insufficiently tough,
leaving Russia exposed to a sharp fall in the oil price. 
    "We think much more needs to be done in order for the
Russian public finances to return to a sustainable path,"
analyst Liza Ermolenko wrote in a note.                         
               
 
 DRAFT THREE-YEAR BUDGET 2013-2015 (in trillion roubles unless
stated)
                            2012     2013      2014     2015
  Break-even oil price ($)  116.2    113.9     106.0    105.4
  Average oil price ($)     115      97        101      104
  Nominal GDP               60.6     65.8      73.4     81.5
  Revenues                  12.7     12.4      13.6     15.2
  Expenditures              12.7     13.4      14.1     15.3
  Deficit (% GDP)           0.1      1.5       0.6      0.11
  Non-oil deficit (% GDP)   10.6     10.1      8.9      8.6
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