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. Last Updated: 07/27/2016

Falling Price of Oil Factor in '05 Budget

Russia will have a smaller budget surplus in 2005 as oil prices are expected to decline and crimp revenue, said Boris Gusev, the head of the Finance Ministry's press office.

The Cabinet is set to review the budget draft for next year on Monday before sending it on for parliamentary approval.

The federal budget surplus will narrow to 278.1 billion rubles ($9.5 billion) in 2005, or 1.5 percent of gross domestic product, from an expected 587.4 billion rubles this year, or 3.6 percent of GDP, Gusev said in a telephone interview, citing next year's budget draft.

The budget draft released Friday predicts the price for Urals crude will fall to an average $28 per barrel in 2005. Revenue from oil and gas make up 57 percent of total exports.

"This is a very conservative scenario and it's smart to base the budget on such a scenario," said Yevgeny Gavrilenkov, chief economist at Troika Dialog. "If the oil price is higher than planned next year, the budget surplus will be higher as well."

Spending is expected to increase to 3.1 trillion rubles ($106 billion) for 2005, or 16.3 percent of GDP, compared with 2.7 trillion rubles, or 16.8 percent of GDP, planned for this year, Gusev said. Revenue is seen at 3.3 trillion rubles, or 17.8 percent of GDP, in 2005, compared with 3.3 trillion rubles, or 20.4 percent of GDP, in 2004.

The economy is seen slowing to an annual 6.3 percent in 2005, from an expected 7.1 percent this year as the price of oil declines. GDP is seen at 18.72 trillion rubles by the end of 2005, Gusev said. The 2005 inflation rate should fall to within 8 percent and 9 percent from about 10 percent this year.

"It would be great if the oil price collapses, because then we would have to take care of our economic policies," including reform of monopolies such as Gazprom and Unified Energy Systems, Gavrilenkov said.

Such reforms would help sustain economic growth and make the country less dependent on oil and gas exports, he said.

Some analysts, including Natalya Orlova at Alfa Bank, expect the price of oil to remain high.

"Currently, there are no factors that would signal a decrease in oil prices," Orlova said by telephone.

Orlova predicts budget revenue and the overall surplus may be higher than planned next year.

 The government is planning a 20 percent pay raise for people paid out of the federal budget, Interfax said Saturday, citing Finance Minister Alexei Kudrin, Reuters reported. It gave no figure for the number of people who would receive the raise or for the total cost.

 The government is planning a big increase in defense spending next year, according to the draft budget, The Associated Press reported. The draft budget allocates 528.8 billion rubles ($18.1 billion) in defense spending for 2005, a nearly 28 percent increase over this year.