Russia said Wednesday it will slash budget spending by 10 percent this year due to sliding oil prices as Prime Minister Dmitry Medvedev insisted the country must "live within its means". The renewed austerity calls came as the price of oil, Russia's key export commodity, hovered around $30 (28 euros) a barrel, and with economic decline a particular concern for officials ahead of parliamentary polls this year.
"The basic principle of our policies should stay the same: one must live within one's means, including by cutting budget spending," Medvedev told an economic conference in Moscow. He admitted that the year 2015 was "perhaps the most difficult in the past decade" for Russia.
"It has been a long time since our economy has been hit with such forceful and synchronised challenges" he said, citing oil prices and Western sanctions against Russia over its role in the conflict in Ukraine. The premier went so far as to caution politicians from making promises they may be unable to keep ahead of parliamentary elections in September. "With economic difficulties, the temptation is great to slide into populism and capitalise on topics that are sensitive for voters," he said. "It's always easy to promise a radiant future, but promises must be delivered."
Speaking at the same event, Finance Minister Anton Siluanov said that the government is going to cut 10 percent of budget spending this year, warning that failure to do so would have a catastrophic impact on the Russian people. "We have agreed that ministries and (government) agencies... will present their proposals to the finance ministry for optimising budget expenditure by around ten percent," Siluanov said, confirming earlier media reports.
"In the current difficult conditions, we must speak of a very thrifty, strict budget policy, in order not to end up with high deficit levels or a high volume of debt," he said. If the government fails to initiate austerity measures, "the same thing will happen as in 1998-99, with the public paying through inflation for our failures in correlating the budget with the new reality," he warned, referring to a previous economic crisis which saw Russia default on its debt.
Russia's 2016 budget - over half of which relies on revenues from oil and gas exports - is based on an oil price of $50 a barrel and a deficit of three percent, which President Vladimir Putin has ordered must not be exceeded. But crude prices on Tuesday dipped below $30 a barrel for the first time in over 12 years and former finance minister Alexei Kudrin estimated that deficit could grow to over five percent if they stay at their current levels. Siluanov said the oil price would have to rise to $82 to fully balance this year's budget. He cautioned against expecting a "price rise (for oil) in the immediate future," while economy minister Alexei Ulyukayev predicted that oil prices would remain low for "a very long time."
While last year's budget deficit was 2.6 percent, this year is expected to be more difficult. The government has been forced to dip heavily into its reserves and abandon support for the ruble, which has slid in value. The economy has also been pummelled by Western sanctions imposed due to Moscow's meddling in Ukraine, as well as Russia's counter-measures which included an embargo on key food imports.
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