bne:Chart – Russia budget deficit a given, but how big?

By bne IntelliNews January 30, 2015

Henry Kirby in London -


Amid continued decreases in the price of oil and the weakening of the ruble, Russia's Ministry of Finance has revised the 2015 budget, with spending cuts of 10-15% looking likely.

The budget cuts of at least 10% are now being planned in efforts to soften the blow of low oil prices on Russia’s bottom line, requiring major revisions of both oil price and ruble rate expectations.

The current consensus is that 2015 will see oil average $60 a barrel, the ruble average RUB56 to the dollar, and Russia record a 2% deficit as a result. The original 2015 budget, announced last year, was based on an oil price of $96 per barrel.

Speaking at the World Economic Forum in Davos last week, Russian Deputy Prime Minister Arkady Dvorkovich conceded that, despite the revised budget being modeled on $60/b oil, prices could drop even further. “For a short period of time, prices can be lower than today, $25-30, but not for a long period of time since most of the countries actually want higher prices,” he said.

Russia’s budgetary break-even point last year hinged on $100 oil and a ruble rate of RUB32 per dollar. The current price per barrel of Brent crude is less than half of that. After a brief rally in late December, the ruble has since steadily weakened, trading at RUB69.2 per dollar at the time of writing.

If 2014 is to be taken as a marker of things to come, then the above estimates could well prove to be wide of the mark come the end of the year. Even slight changes in either the oil price or ruble rate parameters would see Russia’s end-of-year balance sheet looking drastically different to current predictions.

The bne:Chart below takes as a starting assumption analysts’ best guess of $60/b oil and a rate of RUB56 per dollar, giving a 2% budget deficit, with all changes relative to this point. Use the sliders to enter various ruble rate and oil price values to see what Russia’s potential deficit or surplus could be.

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