Oil Drop Outpacing Ruble Strains Russia Budget: Chart of the Day

By Vladimir Kuznetsov and Radoslav Tomek

Russia’s budget deficit plans are increasingly strained as the drop in oil prices outpaces the concurrent ruble slide stoked by U.S. and European sanctions.
The CHART OF THE DAY shows the price of Brent oil, expressed in rubles, dropping below the level envisaged in the government’s 2015 budget. Even as crude tumbled, Russia’s budget has been shielded by the ruble, whose depreciation increases the local-currency value of exported oil and gas.
Penalties imposed by the U.S. and EU, who accuse President Vladimir Putin of fomenting the Ukrainian crisis by aiding separatists, limit the country’s access to market funding and make deficit-financing more difficult. A weaker ruble may be needed for
Russia to keep next year’s deficit at the planned 0.6 percent of gross domestic product, according to ING Groep NV.
“The Russian government either accepts more ruble weakening or a higher budget deficit,” Dmitry Polevoy, the chief economist for Russia at ING in Moscow, said by phone Oct. 17. “Russia can manage a bigger shortfall by dipping into its sovereign wealth fund, but it may also need to reduce spending.”
The ruble weakened 17 percent since June, the most among almost 170 currencies tracked by Bloomberg. The central bank spent at least $13 billion on currency interventions this month in an attempt to make this decline orderly, Polevoy said.
Economic penalties on Russia and rising yields curbed ruble-denominated government issuance by 74 percent this year to 157 billion rubles, while the sovereign has not sold foreign debt since September 2013, Finance Ministry data show. The federal budget showed a surplus of 1.1 trillion rubles, or 2.1 percent of GDP, in the first nine months of 2014.