Page 9 - RusRPTJun20

medical insurance as they collected. But specific tasks and projects like upgrade of primary healthcare are a completely different story. In this case, budget resources that exceed insurance payments are spent,” he said.
The government already approved two anti-crisis packages and is working on a third that should help companies relaunch operations after the mandatory downtime, he said.
He said that the ministry wanted to raise Russia’s sovereign debt by 1.5–2% of GDP to compensate non-energy revenue shortfalls to RUB4–4.5 trillion this year.
At the same time, the cost of debt for Russia is high. “We borrow at 5.5–6.3% now, while the developed countries borrow at less than 1%. We spend more than RUB800bn rubles each year on interest, and we will pay about 1.5% of GDP per year if we double borrowing, which is more than 6% of the budget, so we would have to cut other spending,” he said.
There is no economic sense in using the entire RUB5 trillion growth of lending by banks to finance budget deficit, thus eliminating the interest of banks in lending to the economy. Banks eagerly buy Russian state bonds, but the government has to know where to stop and not to offer too high yields, he said.
BUDGET RULE
Abandoning the budget rule is dangerous for the budget and macroeconomic stability, Siluanov said.
“Judging by the experience of previous debt and budget crises, we came to an optimal budget formula, or the budget rule, when the budget balance is reached at a baseline oil price, which now stands at US $42.4 per barrel. We added 0.5% of GDP to spending to raise financing of infrastructure temporarily until the national projects are finished. This method creates stability for the budget, it helps us forecast maximum state spending, it creates no risks for fulfillment of obligations,” the business daily quoted him as saying.
“That is why the suggestions to forget the budget rule and spend regardless of our abilities are dangerous to the budget and for macro stability,” he said, adding that the rule creates enough flexibility for the budget as it allows the government to raise debt to compensate lost non-oil and gas revenues.
Nevertheless, the cutoff oil price under the rule is too high today and should be revised. “We want the cutoff price to work. We should stop it today as it is growing by 2% each year, and it will grow to $44 per barrel in 2022. It is too high of a threshold in the current situation,” he said.
OIL PRICE
Russia has created necessary financial cushions and will weather the oil price of even $10 per barrel, Siluanov said.
“If the Urals price had been below $15 five years ago so the budget does not receive a kopeck of oil and gas revenues, it would have been a crisis. But now we don’t even pay that close attention to oil because we have created necessary financial buffers and we will survive even at a price of $10. This is a
9​ RUSSIA Country Report​ June 2020 ​ ​www.intellinews.com