Russia faces a huge shortfall in its national budget revenues this year and will have to drain tens of billions of dollars out of its rainy-day funds to compensate, Finance Minister Alexei Kudrin said on Friday.
The assessment by Kudrin to the Duma, the lower house of parliament, was a dramatic turnaround from his statements almost exactly a year ago, when he told the World Economic Forum in Davos that Russia would be an "island of stability" amid global economic turmoil.
But since then Russia has been battered by a steep plunge in world prices for the oil, the backbone of the country's economy. Russia's budget for 2009 was based on the assumption of oil selling for $95 a barrel; now the price hovers around $42. Kudrin forecast that revenue this year would be around 6.5 trillion rubles ($181 billion), some 40 percent lower than the budget planned on.
As a result, he said, the country will have to take 2 trillion rubles ($56 billion) out of its reserve fund, one of two funds Russia created to absorb oil revenues when world prices were higher than the national budget foresaw. The two funds currently hold a total of about 7.3 trillion rubles ($208 billion), Kudrin said. Russia's economy soared in recent years as rising prices for oil and other natural resources spawned expansion of the consumer sector and created a nascent middle class. After years of hesitance following the 1998 financial crisis, foreign investors began showing enough confidence in Russia that the country recently had recorded net capital inflows.
But Kudrin told the parliament that he expected 2009 would record a capital outflow of up to $110 billion.
Investor confidence in Russia was undermined not only by the oil price plunge and global economic problems, but also by concerns that the Kremlin was trying to establish stronger control over major industries. The August war with Georgia also sparked a sharp fall in the Russian stock market, which in recent years had been among the world's most lucrative.
Deputy Prime Minister Igor Shuvalov, in turn, told the Duma that "the crisis would last for three years and 2009 is going to be the most difficult one."
The ruble has lost more than 30 percent of its value since August and continued its fall on Friday, dropping about 1.5 per cent against the dollar by mid-afternoon.