Russia's 2002 Budget Sets Oil Price

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Last updated at: (Beijing Time) Thursday, November 22, 2001

Russia's 2002 Budget Sets Oil Price

Russia's budget for 2002 will set average price for a barrel of Russia's export crude oil at 14.5 to 18.5 U.S. dollars, down from a earlier forecasted corridor of 18-22 dollars, Russian Finance Minister Aleksei Kudrin said Wednesday.

The government has "overestimated some prospects" for global economic growth in its previous draft budget for 2002. The average price for oil written into the new 2002 budget should be 14.5 to 18.5 dollars per barrel, Kudrin told reporters after meeting with the leaders of four State Duma factions to prepare the draft 2002 budget for the third reading in the lower house of parliament.

When the 2002 budget was drafted, the forecast of oil price at 18 dollars per barrel was considered pessimistic. But, now it is seen as the optimistic one, he said.

Therefore, the government must "prepare for the possibility of having to confront risks, including a reduction in budget revenues" from oil exports, Kudrin said.

In preparing the budget plan for the third reading, the government and the Duma "must review and weigh part of the expenditures," he said.

At a price of 18.50 dollars per barrel, the government will carry out all expenditures in the draft budget, but there will not be a surplus, he predicted.

The cabinet is also considering two other scenarios, with oil prices at a minimum of 16.50 and 14.50 dollars per barrel.

If the price fluctuates between 18.50 and 16.50 dollars, up to 68 billion rubles (2.27 billion dollars) in budget spending items will have to be financed on a low-priority basis.

If the price falls to 16.50-14.50 dollars, the budget will undergo cuts and the government will have to resort to other measures, including possible borrowing from the International Monetary Fund, he said.

Kudrin, who also holds the post of vice-premier, noted that if oil prices slide to 16.5 dollars per barrel, inflation forecasts for 2002 will be raised upwards by 1-1.5 percent. Earlier, the government forecast 12 percent inflation for the next year.

However, Kudrin said the government will preserve the planned ruble's exchange rate vis-a-vis dollar -- 31.5 rubles to one dollar -- in the draft 2002 federal budget.