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No limits to replenish Russian Reserve Fund under new rules — finance ministry

February 26, 2016, 10:44 UTC+3

Finance Ministry's official outlined several trends in Russian economy in 2016

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© Vladimir Smirnov/TASS

SHANGHAI, February 26. /TASS/. Proposals of the Russian Ministry of Finance on the new budget rule [the rule limiting budget spending on the basis of oil price - TASS] do not provide limits for replenishment of the Reserve Fund as before, Deputy Finance Minister Maxim Oreshkin said on Friday.

"There will be many new points in terms of counter-cycles and so on. Our current proposals [on the new budget rule] do not provide for any limits for replenishment of the Reserve Fund," the official said.

The essence of the rule was to transfer additional oil and gas revenues to the Reserve Fund and then to the National Wealth Fund after the Reserve Fund reaches 7% of the GDP. The rule was suspended in 2016.

Ruble to devalue by 2.5 percent

The devaluation of the Russian currency will contribute 2.5 percentage points to inflation in 2016, the deputy minister added.

"In 2016, [devaluation] will contribute 2.5 percentage points to inflation for the whole year," he said.

In 2015, devalued ruble contributed 8 percentage points to inflation, which equaled 12.9% for whole year, according to the data provided by the Economic Development Ministry.

Russia’s Central Bank projects inflation at 5.5-6.5% in 2016.

According to the Economic Development Ministry’s forecast, inflation will top 6.4% if oil prices equal $50 per barrel while pessimistic scenario implies inflation rising above 8.5%. Meanwhile Economic Development Minister Aleksey Ulyukayev said inflation at 7-7.5% is most probable for 2016.

Retail sales to drop in 2016

The official also estimated that inflation would be putting the highest pressure on retail sales in Russia in the first half of the year due to a transfer effect of the ruble’s weak exchange rate adding that in full year retail sales would decrease less than in 2015.

"This year’s results will be much better than last year’s but still they’ll be under pressure, especially in the first half as we’re having the transfer effect of the exchange rate. Inflationary pressure will be the highest in the first half of the year in monthly terms exactly due to a transfer effect," he said.

In 2015, retail sales in Russia dropped by 10% compared with the previous year to 27.6 trillion rubles ($365.8 bln).

According to Oreshkin, the Finance Ministry "expects decrease [of retail sales - TASS] in annually terms in any case, while seasonally adjusted monthly dynamics will be very weak."

"So far we face a higher inflation as we have a transfer [effect] from the end of last year - the beginning of this year in terms of exchange rate, which means real household earnings and real wages decrease faster, that’s why retail sales are under certain pressure," the deputy minister stated.

Earlier media reported with reference to the Economic Development Ministry that retail sales will decrease by 2.9% in 2016.

Up to 5 percent rise in gasoline prices

Delivering on gasoline proces the official conveyed that the Russian Finance Ministry expects them to rise at a level below inflation (5%) in 2016 against the oil price of $30 per barrel, even subject to possible fuel excise rate growth from April.

"We have largely similar projections of gasoline price hike [5% - TASS] under the scenario of $30 per barrel. This is the price growth for 2016, from January 1 to January. In other words, gasoline price growth at the [oil] price of $30 a barrel will be smaller than inflation growth in the country at large," the deputy minister said.

The Russian Government presented the draft law on higher gasoline and diesel fuel excises from April 1, 2016 to the State Duma. Class 5 motor gasoline excise rate is suggested as amounting to 10,130 rubles ($134.3) from April 1 to December 31, 2016.

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