MOSCOW, July 14. /TASS/. Russia’s State Duma (lower house of parliament) has adopted the bill on a new budge rule (mechanism of Russia’s budget formation, determines the maximum level of spending on the basis of oil prices - TASS), which is hoped to reduce the dependency of the federal budget on oil and gas revenues, on its second reading on Friday.
The new rule implies that the parameters of the country’s federal budget, expenditures in the first place, will be calculated on the base of 40$ per barrel price of Urals crude oil measured in 2017 dollars, which will be annually adjusted by 2% starting 2018.
According to the draft law, only oil and gas revenues calculated on the base oil price, base export gas price, projected currency exchange rate, the amount of non-oil and gas revenues and debt service expenses may be allocated on federal budget expenditures.
The government’s amendments to the second reading of the bill also imply that the National Wealth Fund (NWF) will be consolidated with the Reserve Fund. The idea is to consolidate the two funds against the background of expected depletion of the finances of the Reserve Fund amid a sharp drop in oil prices over the past two years. "It is proposed to use the National Wealth Fund to finance budget deficit and bring the pension system into balance as follows: if the total amount of funds in the consolidated fund exceeds 5% of GDP the use will be limited to the shortfall in oil and gas revenues, otherwise, the proposal is to limit it to 1% of GDP in order to keep the smallest possible amount of funds on sovereign funds," Deputy Finance Minister Vladimir Kolychev said at the State Duma’s budget and tax committee meeting.
Previously, the essence of the rule was to transfer additional oil and gas revenues formed if the actual price of oil exceeded the target price, to the Reserve Fund. This mechanism was suspended in 2015 due to plunging oil prices.
The new budget rule is expected to come into effect in 2019, next year may see a transition period launched.