MOSCOW, October 28. /TASS/. Modernization of the Russian Armed Forces is a priority task and the funds on this upgrade are set aside in the 2017-2019 budget, Finance Minister Anton Siluanov said on Friday.

"Next year, despite all the complexities, is the year that will see further modernization of our Armed Forces. This is a geopolitical task, one of our priority goals. The president has set the task to ensure 70% of modern armament in our army by 2020. The funds required for this have been set aside," the finance minister said.

The Russian government submitted a draft budget for 2017 and for the planned period of 2018 and 2019 to the State Duma on Friday.

According to the document, the federal budget deficit will total 2.75 trillion rubles ($43.8 billion) in 2017 and will gradually decrease to 2.011 trillion rubles ($31.9 billion) in 2018 and 1.142 trillion rubles ($18 billion) in 2019.

Federal budget revenues will total 13.487 trillion rubles ($214 billion) in 2017, 14.028 trillion rubles ($223 billion) in 2018 and 14.844 billion rubles ($236 billion) in 2019.

Federal budget expenses will amount to 16.240 trillion rubles ($258 billion) in 2017, 16.039 trillion rubles ($255 billion) in 2018 and 15.986 trillion rubles ($254 billion) in 2019.

According to Siluanov, the finance ministry will draft a proposal on further consolidation of the budget if revenues decline.

"If [budgeting conditions - TASS] are worse, we will prepare a proposal for further consolidation. This applies both to revenues and expenditures. Measures are taken in Russia and in other countries that face such situation," Siluanov said.

Privatization plans

According to the minister, plans for privatization in 2018-2019 are yet to be discussed.

"The budgets for 2018 and 2019 imply revenues from privatization at 14 billion rubles ($222 mln) each. But we shall discuss it during the next budget cycle," Siluanov said.

The official reminded that the budget for 2017 includes revenues from privatization at 138 bln rubles ($2.2 mln).

The minister has denied that the government had discussed privatization of another 10% in Rosneft. 

"When we 'were selling' 19.5% [in Rosneft - TASS] the idea was that we have a controlling stake. If we continue selling, the package will no longer be controlling. So we [the government - TASS] have not discussed such plans [to sell another 10% of Rosneft - TASS]," Siluanov said.

A source in the financial and economic bloc of the government earlier told TASS that the government might order Rosneftegas to sell another 10% of Rosneft shares in 2017.

Meanwhile the official noted that all Rosneftegaz proceeds from Gazprom and Rosneft wouldbe allocated to the federal budget.

"All the revenues that Rosneftegas receives from Gazprom and Rosneft, according to the law, will be allocated to the budget. We have submitted such proposal to the budget and we are confident that it will be implemented," Siluanov said

As for privatization of other state assets, Siluanov pointed out that Alrosa privatization was not included in the 2017 budget, while it was planned to sell Sovcomflot and 11% of VTB.

"No, we have reached the limit on Alrosa," the minister said replying to a question.

"Next year we plan two large transactions - the sale of 11% of VTB package and sale of Sovcomflot," Siluanov said.

Eurobonds

The finance minister also said that domestic rather than foreign loans would be the main source of deficit coverage in 2017-2019.

Speaking about borrowings, Siluanov pointed out that the ministry would exchange Russian Eurobonds next year to improve the debt structure.

The Finance Ministry will announce a series of Russian Eurobonds issues that will be used for exchange in 2017 by the end of this year.

"We will have understanding of issues [of Eurobonds for exchange - TASS] already this year. This will be done in order to optimize the structure and streamline the repayment schedule. We will also extend our debt commitments for a longer period. We will probably announce issues by the end of this year," the minister said.

It was reported earlier the Russian Government may take decisions next year to float Eurobonds with par value up to $4 bln within the framework of exchange for other issues of Russian government securities denominated in foreign currency by agreement with their holders. Such a statement was made in the draft budget for 2017-2019 prepared by the Finance Ministry and posted on the legal information website.

Yuan-denominated bonds

The finance ministry does not plan to float federal loan (OFZ) bonds denominated in yuan by the end of this year.

"We can take all borrowing amounts by the end of this year on the domestic market, without reaching the Chinese market and attracting investors from China. Such a structure is under development and such opportunities were explored with the Central Bank and counterparts from China but there is no such need so far," Siluanov said.

Russia’s yuan-denominated bonds are likely to have good perception on the market, Senior Vice President at Moody's Investors Service Kristin Lindow told TASS this Thursday.

It was reported earlier Russian Finance Ministry may float on the Moscow Exchange the pilot issue of yuan-denominated bonds in the amount equivalent to $1 bln by 2016 year-end.