The government's current fiscal policy leaves it vulnerable to an “inevitable” new global downturn and may lead to a budget crisis if demand for oil sours, Renaissance Capital said in a report Tuesday.
“We note that at this point Russia, in financial terms, is not ready for a new global crisis, which is inevitable, unfortunately,” said Renaissance economists, led by Alexei Moiseyev. “To change the situation, it needs to liberalize its currency policy, look at ways of cutting the budget deficit and avoid accumulating external debt.”
The government raised expenditure fourfold over the past decade, Finance Minister Alexei Kudrin said last week. Russia, which last year posted a fiscal gap of 5.9 percent, the country’s first in a decade, may run a deficit this year of between 6 percent and 6.8 percent, Kudrin said April 1.
State stimulus spending may become a more important driver of Russia’s uneven economic recovery as “new sustainable growth sources have yet to be found,” RenCap said.
An “analysis of the federal budget indicates that any buildup in spending is no longer possible,” the economists wrote. “Moreover, if the current budget policy remains intact, we believe Russia could face a budget crisis depending on the market situation for major export goods.”
The government needs the price of oil to average more than $100 a barrel to balance its budget, the investment bank said in the report. Budget revenue may drop by about 100 billion rubles ($3.4 billion) this year as slower inflation erodes government income, RenCap said.