Page 54 - bne IntelliNews Russia Country report May 2017

of the last two and half years. This is because Russia has worked hard to make up for the fall in prices by increasing the volume of oil produced to a record 11mn barrels a day. More rises are now curbed by a deal with OPEC signed at the end of last year and due to be renewed at the OPEC Vienna meeting in June.
The role of oil is important to understand the deficit’s significance for Russia’s economic health. While the Ministry of FInance is full focused on funding the headline federal budget deficit -- Russia is on course to run a 2% of GDP deficit in 2017 -- the more important deficit is the non-oil deficit (what the budget deficit would be if all the oil magically disappeared).
Russia has always used its oil revenues to subsidies budget spending so even in the boom years when it ran a nominal budget surplus, the non-oil deficit was actually negative and MinFin targetted 4% a comfortable compromise between supercharging economic growth and building up reserves.
In crisis years the non-oil deficit balloons out as the government is forced to tap oil income and reserves to bail out the struggling economy. In 2009 the non-oil deficit reached some -13% of GDP which is not sustainable.
In general the non-oil deficit is a much better gauge of how well MinFin is coping with the the crisis than the headline deficit and it has been doing a good job, although here too the government finances remain exposed to oil price fluctuation shocks.
MinFin started 2016 with a non-oil deficit of 13% in the first quarter but during the rest of the year managed to wrangle it down to 9% with a low of 6% in November before the traditional holiday season blow out in December when the non-oil deficit spiked to 20%. This year is looking a bit better as MinFin started with a 7.2% non-oil deficit in January, which rose to 12% in February, but once the spring arrives, and assuming there is another good harvest this year, then MinFin should be able to wrangle the non-oil deficit down again. However, without deep reforms and a return to strong growth the preferred -4% for the non-oil deficit will not be obtainable in the foreseeable future.
54 RUSSIA Country Report May 2017 www.intellinews.com