Page 23 - IFR Opportunities in Russian capital markets

CHAPTER 01
ifrintelligence reports/Opportunities in: Russian Capital Markets
The donor regions in 2006 were: the city of Moscow, the city of St. Petersburg, the Yamal-Nenets, Nenets, Agin Buryat, and Khanty-Mansi autonomous districts, the Perm, Komi Republic, Tyumen, Samara, Lipetsk, Vologda, Sverdlovsk, Leningrad, Yaroslavl, Chelyabinsk, and Orenburg regions, according to the Regional Development Ministry. Moscow dominates, accounting for 70% of regional contributions to the federal budget.
Oil and economic expansion
Both the growth of the Russian economy and the importance of oil can be seen in the price of oil needed for the budget to break even.
In 2000, the price of a barrel of oil had to be US$14 or more to generate enough tax revenue for the budget to break even, according to Alfa Bank. In 2006, the break-even price of oil had risen to an estimated US$39 per barrel.
In both years, the actual price of oil was well above this level, and the Kremlin is confident as it has a wide comfort zone against the US$62.3 average first quarter price band which oil has been trading at through to the start of 2007. Even bankers' long-term forecasts for oil predict prices of the order of US$45. Price movements and forecasts for Brent oil are given in Figure 1.11.
Table 1.3: Russian budget law and execution, 2003–07, (% GDP)
Budget law 2003 2004 2005 2006 2007
Federal budget revenues 18.5 17.9 Federal budget non-interest expenditures 15.8 15.5 Budget surplus 0.6 0.5 Oil price forecast (US$) 21.5 22 Inflation foecast 12.0 10.0 GDP growth forecast 4.4 5.2 Budget execution
Federal budget revenues 19.4 20.4 Federal budget non-interest expenditures 16.1 15.1 Budget surplus 1.6 4.3 Oil price(US$) 27.2 34.2 Inflation 12.0 11.7 GDP growth 7.3 7.2
17.8 20.7 22.3 15.0 16.7 17.0 1.5 3.2 4.8 28 40 61 8.5 8.5 8.0 6.3 5.8 6.0
23.9 24.1* 24.0* 15.4 14.5* 17.0* 7.5 8.9* 6.5* 52 65* 65* 10.9 9.5* 9.5* 6.4 6.6* 6.4*
Note: Alfa Bank’s forecasts on oil prices, inflation and GDP growth; oil prices forecasts are currently under revision * Budget execution for 1H06
Source: Finance Ministry, Internet Securities
Figure 1.10: Russian Federal budget revenues and expenditures, 1998–2007E (% GDP)
% to GDP ratio
24
20
16
12
8
1998 1999 2000
Federal budget revenues, % GDP Federal budget expenditures, % GDP
Source: RosStat
2001 2002
2003 2004 2005
2006E 2007E
16