The lower house of the Russian parliament, the State Duma, passed the 2016 federal budget with a 3% GDP deficit in the third and final reading on December 4, with a comfortable majority of 297 votes for the draft and 149 against.

The government approved the budget in October after switching to "manual control" mode in fiscal planning. As of 2016, it will resort to one-year budgeting instead of three years, and abandon the budget rule benchmark setting the average oil price for capping expenditure levels, in view of the turbulence on the global oil market.

Fiscal adjustments in the new budget include a higher tax burden on large oil companies, the continued freezing of pension accumulations, and slowed indexation of age pensions and public salaries. Military spending remained intact and was adjusted upwards on the last days of budget drafting.

Spending is budgeted to decline by 0.5% y/y in 2015 to RUB13.74 trillion ($202bn at current rates, or 17.5% of GDP), and to RUB16.1 trillion ($237bn, or 20.5% of GDP), respectively.

The budget assumes a $50/barrel average oil price for 2016, average inflation not exceeding 6.4%, and nominal GDP of RUB76.67 trillion.

The 3% budget deficit will be financed by tapping the Reserve Fund, which is projected to decline from RUB3.4 trillion to about RUB1 trillion in 2016.

The government also plans to borrow both domestically and abroad, with net domestic borrowings amounting to RUB300bn ($4.4bn) and net foreign-currency nominated borrowings of $1.47bn.