Russia: Ready for Low Oil Price

RUSSIA ECONOMICS - In Brief 09 Mar 2020 by Alexander Kudrin

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As the oil price (Brent) touched $30/bbl on March 9 in the aftermath of OPEC+ agreement falling apart, obvious concerns emerged about the Russian budget and to some extent the balance of payments. The latter is likely to stay positive as the ruble immediately weakened which will pressure imports. The actual size of this surplus is of secondary importance for the time being as the Minfin/CBR pair immediately announced they would suspend FX purchases on the market. If the oil price stays around $40/bbl and below no FX purchases are stipulated by the fiscal rule. It looks as though the $30/bbl oil price is no immediate threat to the Russian budget and the 2020 spending plans are not going to be slashed, albeit they are likely to be corrected in 2021 and beyond if the oil price remains below $40/bbl for a prolonged period. Even if the average price stays at $45/bbl in 2021-2022 the government is likely to trim its previous plans to increase spending. If the oil price stays low for the rest of 2020 (say, within the $30–40/bbl range) then the government may tap the National Wealth Fund in line with regulations, but massive sequestration is unlikely. However, some kind of “technical” spending cuts could be possible as every year the government allocates funds slowly and spending appears rather uneven – it jumps up massively every December. For instance, the federal budget spending doubled in December 2019 to R3.3 trln vs monthly instalments of R1.2-1.6 trln during 11m19. And this additional December spending is rather unimportant for the economy. In theory, i.e. in the worst case, the government may “technically” trim spending this way by up to R1trln should the oil price sta...