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 In comments underlining the government's growing concern at the
downturn, Finance Minister Anton Siluanov said all budget
expenditure should be cut by 10 percent except defense, a priority
for President Vladimir Putin.
Adding to the gloom, Economy Minister Alexei Ulyukayev said there
was a "pretty high" chance Russia's credit rating would be
downgraded to junk and a deputy, Alexei Vedev, said he expected
inflation to peak at 15-17 percent in March/April.
A steep fall in the rouble, low prices for its main oil export and
Western sanctions over Moscow's role in the Ukraine crisis have hit
Russia's economy hard, and Siluanov said overall expenditure in 2015
must increase by 5 percent, not the 11.7 percent previously
budgeted.
"The state cannot have the kind of spending it used to have with
economic growth ... (and) with the oil price at $100 per barrel,"
Siluanov told a conference of state officials, economists and
business chiefs.
But with Russia being starved of investment, pressure is mounting
for stronger government action to pull it out of crisis.
"We need a radical turn in economic policy," said German Gref, the
head of Russia's biggest bank, Sberbank, demanding a "breakthrough"
to improve the dire investment climate, stymied by state pressure on
business and weak rule of law.
Ulyukayev also highlighted the problems facing small and medium
businesses, saying they must be supported to try to spur Russia's
oil-dependent economy, which the World Bank expects to contract by
2.9 percent this year.
"The global economy will never again be what it used to be in
2000-07 and the situation in Russia will never be the same,"
Ulyukayev said, referring to the economic boom years under Putin
when the global oil price soared. "It will be much more complicated.
It already is much more."
BUDGET GAP
Russia's 2015 budget was based on an oil price of $100 a barrel but
prices are now close to six-year lows at just above $46 a barrel.
"Regardless of having already curbed 2015 spending, we will ask
parliament to cut by 10 percent all expenditure apart from defense
spending," Siluanov added.
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He said Russia needed to husband its reserves to overcome
difficulties as the price of oil looked set to continue at low
levels. The rouble, which fell about 40 percent against the dollar
in 2014, has also continued its decline this year.
"We think that with the (average) oil price at $50 per barrel (in
2015) ... we will lose some 3 trillion rubles in revenues," he said.
Siluanov said the Reserve Fund, a rainy day fund of around $90
billion to cover budget holes, would be increased by 370 billion
rubles ($5.60 billion) from last year's savings, but Russia would
need to spend more than 500 billion rubles from it in 2015 to cover
the budget gap.
The 500 billion, currently invested in foreign currency assets,
would be converted gradually on the forex market.
Siluanov said the ministry could invest part of the Reserve Fund in
rouble bank accounts to take advantage of the weak rouble and earn
high interest.
"We need to have a lot more resources so as not to spend, not to
burn up the reserve funds," he said.
($1 = 66.1200 rubles)
(Additional reporting by Polina Devitt, Gabriela Baczynska, Oksana
Kobzeva, Jason Bush, Katya Golubkova and Elena Fabrichnaya, Writing
by Elizabeth Piper, Editing by Timothy Heritage and Jon Boyle)
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