Russia facing first budget deficit in a decade

Dec 24, 2008, 11:07 GMT

Moscow - Russia faces a budget deficit in 2009 for the first time in a decade as falling prices for oil, the country's main export commodity, squeeze government revenues, a Kremlin official said Wednesday.

Economic aide Arkady Dvorkovich also said the government did not rule out the possibility of seeking foreign credit next year.

Russia has been allergic to the idea of taking on foreign debt since the national ruble default in 1998 wrecked savings and brought the government to the brink of bankruptcy.

While Dvorkovich did not not detail the size of the deficit, he said it would be covered by money from Russia's rainy-day fund of oil- windfall reserves.

The budget for 2009 is based on an oil price of 95 dollars per barrel, but the Finance Ministry has since scaled scaled down its oil price forecast to 55 dollars per barrel.

Business daily Vedomosti reported Wednesday that the deficit could top 5 per cent of GDP, citing unnamed officials in the ministry.

With oil now trading at under 40 dollars per barrel, there is a looming 1-trillion-ruble (36-billion-dollar) shortfall, officials had said earlier this month.

'The deficit has been caused mainly by failing oil prices and therefore it is completely logical to use the reserve fund to cover the budget deficit,' Dvorkovich told news agency Ria-Novosti at a Kremlin briefing.

 Russia's four-year budget plan enacted last month includes spending hikes in defence and infrastructure.

But business newspaper Kommersant reported Wednesday that the Finance Ministry will unofficially cut the next year's by about as much as 7 per cent.

Russian Prime Minister Vladimir Putin demanded that the accounts for ministries and state agencies decrease 15 per cent, the daily said.

Dvorkovich added that the Kremlin could consider seeking a foreign loan.

'As with any other year we can resort to this possibility. We have a very low level of foreign debt,' he was quoted by news agency Itar- Tass as saying. 'Russia is seen as a good borrower. If necessary, we will do so.'

Former President Putin obsessively paid off Russia's multibillion dollar external debt during the oil industry's boom years from 1999 to 2005.

But Russia has been one of the hardest hit by the financial crisis.

The ruble has been placed under extreme stress after the country's stocks lost over 70 per cent of their value since peaks in May and capital flight surged amid the instability sparked by Russia's war with Georgia in August.

The Finance Ministry has slashed its growth forecasts of an average 8 per cent in recent years to 2.4 per cent last month, and analysts say the slowdown will likely be even more severe.