Russia's falling oil revenue budget could create vicious cycle for ruble

Russia’s falling oil revenue budget could create vicious cycle for ruble

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budget hole

Russia has posted a deficit of 3.3 trillion rubles in 2022, equivalent to 2.3% of GDP – its worst performance since President Vladimir Putin came to power two decades ago.

Finance Minister Anton Siluanov said in December that the price cap imposed on its oil could mean Russia’s budget deficit is wider than current plans of 2% of GDP in 2023. Government officials have also publicly stated that they would like to see a weaker ruble – something that seems likely to deter foreign exchange intervention.

Analysts at Alfa Bank said it was “disturbing” that the finance ministry would restart FX sales while the Kremlin is also taking aim at a weakening ruble.

Russia’s budget for this year is based on a Ural blend price of around $70.10 a barrel, although Russia’s core mix is ​​currently trading at around $50 a barrel.

According to Reuters calculations, this is a two-year low in the ruble.

“If relatively low prices for the Urals persist for a long time, and the ruble remains relatively strong, the budget hole will widen,” said Anton Tabakh, chief economist at RA Expert.

State-owned bank Sberbank estimated that if the average price for Russia’s Ural blend were $55 a barrel, and the ruble continued to trade around 67 against the US dollar, the government would lose $1.5 billion – or 100 billion rubles. – Will need to sell foreign currency. holdings every month to cover the gap.

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