Russia expects first deficit in a decade

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(Agencies)
Updated: 2008-12-24 20:44

MOSCOW -- Russia will run a budget deficit in 2009 for the first time in a decade as low oil prices take their toll on government revenue, a Kremlin official said Wednesday, the state RIA-Novosti news agency reported.

Protestors attend a rally in Moscow against an increase of import duty on foreign cars. Russia will run a budget deficit in 2009 for the first time in a decade as low oil prices take their toll on government revenue, a Kremlin official said Wednesday. [Agencies]

Arkady Dvorkovich, the president's economic adviser, said the size of the deficit was not yet clear but it would be covered by the reserve fund, money put away for a rainy day when oil prices were soaring.

The business newspaper Vedomosti reported Wednesday that next year's budget deficit could be 5 percent or more of gross domestic product. The report cited unidentified officials in the Finance Ministry and other government agencies.

The 2009 budget was based on an average oil price of $95 per barrel. A revised macroeconomic prognosis completed last week brought the expected oil price down to $50, but oil is currently trading below $40.

"The deficit has been caused mainly by falling oil prices and therefore it is completely logical to use the reserve fund to cover the budget deficit," Dvorkovich told reporters in the Kremlin, the news agency said.

Among emerging markets, Russia has been one of the hardest hit by the global financial crisis and plunging oil prices, the mainstay of the Russian economy. These factors have put the national currency under intense strain and triggered huge stock market losses and capital outflows from the country.

The ruble fell further Wednesday as the Central Bank again eased its support for the currency, which dropped to its lowest level ever against the euro. In the afternoon, the ruble was trading at 40.1 against the euro and 28.6 to the dollar.

The depreciation was the second this week and the 10th since Nov. 11 when the Central Bank began backing off its support. The ruble has fallen about 11 percent in the past six weeks.

Russia, which grew at over 8 percent last year, is facing a severe slowdown in growth. Last week's official prognosis put growth for next year at 2.4 percent, but some analysts predict the economy could even face a recession.