Russia will likely see a significant amount of additional revenue in 2012, largely due to higher oil prices, the country's finance minister said Monday.
Russia expects to receive an additional $800 billion Russian rubles ($27 billion) in additional oil-and-gas-related revenue, Finance Minister Anton Siluanov said Monday, while speaking at the Council on Foreign Relations in New York. Russia's budget is calculated with an expectation of oil prices at $100 a barrel, but the finance ministry now forecasts oil will reach $115 a barrel this year, providing the additional revenue.
This extra revenue will be utilized to reduce borrowing in the domestic market and to build up the country's Reserve Fund, one of Russia's two funds for stashing oil windfall revenue to cover possible budget shortages.
Siluanov said Russia would direct RUB500 billion of the extra revenue to reduce the volume of domestic borrowing, which would reduce the total to be borrowed in domestic markets to RUB1.3 trillion from a previously expected RUB1.8 trillion.
The remaining RUB300 billion of the extra revenue would replenish the Reserve Fund, he said.
These measures help "increase our reserves and build up our safety cushions," he said.
However, Russia still needs to work to consolidate its budget and reduce its dependency on high oil prices, the minister said.
"Our debt is really small but [there is a] problem of dependency on oil prices," he said. "Here we see the need to curb these risks and continue to create a safety cushion."
Siluanov added the government has to cut out ineffective spending and continue with structural changes. Efforts along these lines include balancing the country's pension system and improving spending patterns in the areas of health care and education.
The government, however, doesn't plan to change the current tax regime, with the exception of lowering some tax burdens, like those in the non-oil-and-gas sector, primarily through real-estate exemptions, he said.
"Today we have rather [a] sustainable tax system," he said, adding that the government doesn't want to change its approach.
The finance ministry projects a budget deficit of 1.5% of gross domestic product this year. However, Siluanov said given current conditions, Russia will likely have a "nondeficit" year and could potentially obtain a budget surplus in "favorable foreign economic" conditions.
Copyright (c) 2012 Dow Jones & Company, Inc.
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