The crisis is over! That is a conclusion that could be drawn from the Russian government's decision to return to its three-year budget planning cycle, according to recent comments made by First Deputy Prime Minister Igor Shuvalov, media reports said on March 16.
The government suspended the three-year planning cycle last October after the collapse of oil prices made a mockery of long-term budget estimates. Previously, the budget assumed that oil prices would average $50 in 2016, whereas under the new plan now being drawn up the assumption was reduced to $35-$40. However, a final version of the revised budget has yet to be released by Finance Minister Anton Siluanov.
In addition, the previous scheme arrived at the price of oil by averaging prices over three years – the so-called "budget rule" – which tends to underestimate the price of oil when it is rising and leads to a large surplus. However, this scheme doesn't work well when oil prices are falling and tends to lead to an overly large deficit. So the scheme was scrapped as the government needs to be more accurate in its guesses as to the price and the consequent deficit.
Talk has turned recently to a bottom in the oil markets in March after oil prices started to recover from an eight-year low of $27 in January. While the range of the average price estimates for 2016 is still up in the air, oil prices touched on $40 per barrel on March 7 and are probably going to be higher than $27 this year.
The Russian government seems to think so. The Cabinet of Ministers meeting on February 26 argued that the unexpected drop in oil prices has exhausted itself and a floor has been found, Kommersant daily reported. This process has been helped by mooted talks between Russia and OPEC members, slated to start in April, where a production "freeze" may be imposed. Regardless of what happens at the meeting (if it happens at all) the talk of a freeze has helped talk the price of oil up.
A new three-year plan is already being prepared by the Economics Ministry to cover the years 2017-2019, according to reports, and the ministry is supposed to submit its blue print to the finance, labour and energy ministries by March 18.
The new plan will be split into two parts: the first scenario is supposed to go to the Duma's budget committee by March 29 and the Central Bank of Russia (CBR) will send its proposals for three-year monetary policy to the Ministry of Finance on April 22.
Projections of budget expenditures will then be prepared in June-July, with the final budget to be approved by the Duma by September 15.