Budget Problems Especially Effect Regions

The Head of the Ministry of Finance Anton Siluanov in an interview to NTV said that there are no reasons for the high volatility of the ruble. According to the Minister, Russian currency is fully corresponds to the current state of the payments balance. ‘We do not expect any dramatic changes, peaks in any of the sides. Now the exchange rate corresponds to the current payments balance,’ said Siluanov. The Minister is assured that the current situation with oil prices is a structural change, not a temporary phenomenon. Karina Artemyeva, Head of Analytical Department at National Rating Agency, comments:

‘The exchange rate of ruble is now fully under the influence of the dynamics of oil prices, which quite rightly pointed out the Minister of Finance. Thus, in a relatively free and market rate fixing neither the Ministry of Finance nor the Central Bank of Russia are able to influence the exchange rate, which is determined by the oil price. When speaking about the absence of sharp fluctuations, it is understood that the Bank of Russia will not allow the repetition of the scenario of December 2014, when the rate changed by 20-30% during one day – there won't be such fluctuations on the oil market either, where the daily price deviations, as a rule, stacked in 3-5%.

However, if we talk about the longer-term picture (dynamics of the exchange rate over a month, quarter or year), it is necessary to pay attention to the oil price in rubles, which currently is at a minimum and one and a half times lower than last year's values. It seems that in the current situation oil prices could fall to $16-20 per barrel during January-March 2016. The effect will render export from Iran and the United States, reduced consumption in China, plus an indirect impact will have the deteriorating situation in the stock markets of developing countries – China and so on. So, now the only existing instrument to minimize the budgetary problems (considering the fact that about $15 per barrel revenues from taxes on oil companies essentially are zeroed) becomes the devaluation of ruble. At the same time, we believe it can alleviate the budgetary problems for oil at $25, but at $15 the deficit problem can only be solved through a significant sequester of costs.

We expect that if the downward trend in the oil market would last at least until the end of winter, the ruble may weaken to the dollar to levels of 120-150 rubles, which will partially alleviate the budgetary problem. It should also be understood that the most acute budgetary problems are felt today not at the federal, but at regional levels, and the majority of Russian regions is now under severe budget deficit. Thus, we can expect a gradual devaluation without the possibility of even short-term substantial strengthening of the Russian currency. Any change in the trend in the oil market in mid-term (1-3 months) seems unlikely. But even in that unlikely case of the return of oil price to $40 per barrel, the budgetary problems will persist.

It should also be noted that the budget income reduction occurs with a certain lag in 1.5-2 months in relation to the situation on the spot oil market. Therefore, we can say that today the budget's revenues are derived from oil prices of November 2015, but by March the picture will change, and a sharp drop of oil prices at the beginning of 2016 will be visible, to what the Russian Ministry of Finance is already preparing.’

FederalPress, 18/01/2016