Russia will seek to balance its budget by 2015,
based on oil at $70 per barrel, Finance Minister Alexei Kudrin said
Tuesday, signaling that new strategies will be needed as the country
struggles to erase its first deficit in years.
As commodity
prices plunged in the wake of the financial crisis, Russia's economy
ground to a near halt, forcing the country to spend billions propping
up state companies in order to stave off unemployment and public
unrest.
But while Prime Minister Vladimir Putin has called
for the deficit to be cut from up to 5.4% of gross domestic
product--around $77 billion--this year to zero in 2015, economists
question whether this is possible, especially with the government
looking to spend big to help growth and ease social tensions ahead of
2012 presidential elections.
"Our goal is to gradually
get to a level where the budget is balanced at $70 per barrel. This
means we need to cut costs, cut the deficit," Kudrin said. "By
2015, we can easily do this without changing our social obligations."
Last year's budget would have been balanced at the price of
$98 per barrel for oil--Russia's chief export and the main driver of
its economy. To get that number down to $70 per barrel would entail
huge cuts in spending, analysts said.
"Kudrin's plan is
achievable, but there would have to be more efficient spending, and
not simply less spending," said Yevgeny Gavrilenkov, chief
economist at Troika Dialog. "And of course, there would have to
be cuts."
This year's budget has already been amended
twice to allow for increased spending in 2011. Further increases may
come in the form of more spending on everything from pensions--which
were already increased by 45% this year and may be hiked further in
2011--to the 2014 Winter Olympics, taking place in the city of Sochi
with an estimated price tag of $14 billion.
One place the
government should look to cut costs would be in its support of
lumbering state-run giants like Avtovaz, which received a $1.3
billion state bailout package last year and will likely need support
well into the next decade, Gavrilenkov said. "Most of that money
goes into a black hole."
Putin however, has dismissed
that idea, saying last week that he saw the de-industrialization of
the country as a dead end and pledged support for the aviation and
automotive sectors, which are slated to receive a combined $12
billion in state support between 2009 and 2011.