The prices of oil have increased significantly during the recent months, making the problems associated with Russia’s budgetary shortfall less acute. In May of 2009, the price of Urals crude oil reached USD 55 per barrel, surpassing the mean price of USD 45 for the period of January to April.  

Since Russia’s original budget for fiscal year 2009 was structured on the basis of a USD 70 Urals oil price, a significant overhaul of the budget was necessary. Russian lawmakers approved amendments to the budget in the middle of April. The revised version of the budget is based on the price of oil at USD 41 per barrel.

According to the new budgetary plan, Russia’s state revenues are estimated to be 30 percent below the figures originally expected. The decrease in revenues notwithstanding, expenditures have been increased by nearly 7 percent, by RUR 1.6 trillion (USD 500 000 000). A large part of the new spending measures will be aimed at counteracting the effects of the economic crisis. The expenditures provided for in the initial budget have been reduced by RUR 940 billion, with the most significant cuts made in the general administration category (reduction of RUR 300 billion). Less severe cuts have been made across all monetary outlay items in the budget.

Under the new version of the state budget, Russia will see a deficit of RUR 3 trillion, close to 7.4 percent of the country’s gross domestic product. Budgetary targets that were set out in the original plan were such that the country would have a surplus of RUR 1.9 trillion by the end of the year.

The shortfall will be covered by funds coming from the Reserve Fund, which currently has RUR 4.1 trillion. By the end of 2009, the fund will be depleted to RUR 2.3 trillion.

At the same time, some analysts fear that the actual shortfall of Russia’s budget will be even greater. The amended budget was calculated on the basis of a 2.2-percent contraction of the GDP in the current year. Meanwhile, Russia’s Ministry of Economic Development estimates the number to be significantly higher – at least 6 percent. According to some financial analysts, the deficit figure could be RUR 3.8 trillion, or nearly 10 percent of the GDP. Even while the Reserve Fund would be capable of absorbing such a large shortfall, a deficit on the scale of a tenth of Russia’s GDP would indicate that the reserve could run out by the end of next year.    

Despite the difficult financial circumstances, Russia’s 2010 budget is currently being prepared. According to Aleksei Kudrin, Russia’s Minister of Finance, the government should set a target of having a deficit in the range of 5 percent of the GDP. Minister Kudrin also indicated that the state plans to increase internal lending from RUR 172 billion last year to RUR 425 billion in 2009.

The Russian government has also announced plans to resume foreign borrowing in 2010, for the first time since 2000, with the issuance of Eurobonds valued at up to USD 5 billion. This is small in terms of financing the budget deficit, and the authorities have said that the main aim of the Eurobonds would be to set a benchmark for corporate borrowers. A roadshow for potential investors is planned for later in 2009. Russia’s sovereign debt, at below USD 30 billion, or 1.8 percent of GDP, is minimal. However, the private sector is much more heavily indebted, with the external debt stock of the banking and corporate sectors amounting to USD 452 billion at the end of 2008, equal to 27 percent of GDP. Access to external financing for the private sector has become significantly tougher since the final months of 2008.