Russia cuts budget by 10%

By bne IntelliNews April 10, 2015

Anna Kravchenko in Moscow -


Russia's State Duma, the lower house of parliament, voted on April 10 to cut the federal budget for the first time in 17 years as the country struggles to balance the books after the fall in the oil price and the value of the ruble. 

So acute has the pressure been on national finances in recent months that even defence spending took a hit in the redrafted budget, despite earlier assurances that it would not be touched.

MPs in Moscow passed the budget at the third reading, approving an average 10% cut across the board. The government had submitted a revised version based on an annual Urals oil price of $50 per barrel and a ruble value of RUB61.5 to the dollar, compared with a $96 p/b oil price and RUB37.7  in the first draft in November.

“It is necessary to think about optimising budgetary spending ... to increase financing of certain sectors and revise some parameters in a long-term perspective, to look at priorities,” President Vladimir Putin told the government at the start of the year, following the ruble's 40% plummet against the dollar in 2014. 

The amended spending reaches a record high RUB15.22tn ($296.7bn), or 21% of GDP, while revenues are projected at a record-low RUB12.5tn ($245bn), or 17% of GDP. The federal budget this year was pared back for the first time since 1998, with the deficit increasing from 0.6% to 3.8% of GDP, to reach RUB2.8 trillion.

Staying on the offensive

The 20% of the budget initially assigned to defence was cut by a modest 4% to RUB3.12tn ($57bn). Spending on the state armaments programme was not decreased at all, although some projects were expected to be delayed. 

"Considering the situation in the world, we can’t allow any sort of cuts in the armaments programme now," Deputy Prime Minister Dmitry Rogozin said last October before the first draft was finalised.

This means other sectors will have to make up for the military spending with greater reductions, the authors of the new budget warned recently.

“Certain items of expenditures will grow, and others will accordingly be reduced even further. Public education and health expenditure will be cut back and these are already lower than a year earlier," First Deputy Chairperson of the Budget and Taxes Committee Oksana Dmitrieva said on April 10, TASS reported.

Finance Minister Anton Siluanov said in March that amendments to the 2015 budget imply a decline in investment spending by RUB246bn ($4.27bn), due to capital repairs and construction of individual projects "not directly related to economic growth stimulation”.

The Crimea, annexed by Russia a year ago, is one of the largest new expenses, and will receive an additional RUB1.5bn, making RUB104.5bn ($2bn). An extra RUB590mn is reserved for people seeking refugee status, including those fleeing from Ukraine. The new-look budget also brings a small boost for the agriculture sector, which as well as the planned RUB203bn ($3.86bn) will get additional RUB20bn from the Reserve Fund to follow the government’s new course on imports substitution. 

Still not in the clear

Russia's finances have shown some improvement this year with the ruble now on the up again and oil prices slowly stabilising. But the Ministry of Finance reported a federal budget deficit of RUB765bn, or 7.4% of GDP in January-February. The Russian Reserve Fund shrank by almost 10% in dollar terms in February after the state used the money to cover the budget deficit. The fund decreased to $77.1bn, the lowest level since December 2012. 

On April 3, the foreign currency and gold reserves of the Central Bank of Russia (CBR) stood at $355.3bn, having lost $5.5bn in the previous week. But the week before, the reserves made their strongest advance since November 2009, increasing by $8bn.


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