MOSCOW “New realities” including the possibility that oil prices will remain low for a prolonged period will force Russian Federation to take hard decisions about government spending, its finance minister said on Wednesday.
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Siluanov, whose ministry relies on the energy industry for about half its income, said the current budget for 2016 would need an average oil price of $82 to balance.
Russian Federation is under pressure to plug holes in its budget and revive its ailing oil-dependent economy, as crude oil prices have fallen to around $30 a barrel and could decline further.
Speaking at the same conference, Prime Minister Dmitry Medvedev also said the country needed to steel itself for tough times.
“The dynamics of oil prices are setting the tone”, Mitch Mitchell, an analyst at BCS brokerage, said in a note. “One needs to prepare for the worst scenario”, he said.
“We have agreed that ministries and (government) agencies… will present their proposals to the finance ministry for optimising budget expenditure by around 10 per cent”, Siluanov said, confirming earlier media reports.
Measures totaling 1.5 trillion rubles ($20 billion), including a 10 percent cut in spending that spares outlays on the military and social services, are needed to avoid a shortfall of more than 6 percent of economic output this year, Siluanov said in a Bloomberg Television interview in Moscow on Wednesday.
A month ago the Kremlin ordered spending cuts, although public sector pay and pensions would be spared from the axe.
“I am convinced that the period of low commodity prices will be protracted”, he told the forum. By the logic of markets the bigger the fall today, the larger the rebound tomorrow, and this isn’t the biggest risk.
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“It has been a long time since our economy has been hit with such forceful and synchronised challenges” he said, citing oil prices and Western sanctions against Russian Federation over its role in the conflict in Ukraine.
