Russia 090505 Basic Political Developments

National Economic Trends

Revised Russian State Budget

http://www.barentsobserver.com/revised-russian-state-budget.4587367-16174.html
2009-05-05

Russian President Dmitry Medvedev has signed the revised State Budget for 2009. The budget shows a 2.9 trillion RUB deficit.

While the original budget was based on an oil price of 95 USD per barrel, the revised budget is based on an oil price of 41 USD. This reduces incomes from 10.9 trillion RUB to 6.7 trillion RUB. The deficit will be covered with means from the reserve fund, while another 1.4 trillion RUB will be used for anti-crisis measures, Rossiyskaya Gazeta writes.

Following the crisis, the Russian authorities now intends to abandon plans for the application of three-year budget planning, and rather use only one-year budget plans.

In spite of the economic hardship, the Russian government is trying to soften the impact of the crisis on people’s lives says Head of State Duma’s Committee for Budgets and Taxes Yury Valsilyev. – While other European countries are cutting expenses on social goals, Russia is increasing them. This mainly concerns pensions and labour-market measures.

Read more - Rossiyskaya Gazeta

Russia oil wealth funds fall to $193 bln-FinMin

http://www.guardian.co.uk/business/feedarticle/8488493

Reuters, Monday May 4 2009

MOSCOW, May 4 (Reuters) - Russia's oil wealth funds lost $13 billion in value over the last month, falling to around $193 billion, as Russia taps into the cash pot to cover its budget deficit, the finance ministry said on Monday.

The Reserve Fund, designated for plugging holes in the federal budget, is currently worth 3.6 billion roubles or $106.81 billion, down from 4.1 trillion roubles on April 1.

Russia is expected to post its first budget deficit in a decade this year, of around 3 trillion roubles, as the economy slips into recession and oil prices remain low.

The Finance Ministry said dollars, euros and sterling from the Reserve Fund were converted into a total of 400 billion roubles in April, and the money transferred into the federal budget, taking the value of the transfers-to-date to 1 trillion.

The Reserve Fund is expected to run out by the end of next year, while budget deficits last until at least 2011.

The second outlet for Russia's oil revenues, the National Wealth Fund, held broadly steady at 2.9 trillion roubles or $86.3 billion. The NWF is designated for longer term projects although officials have said some of the money could be used to plug a deficit in the state pension fund.

Under the going exchange rate on April 1, the combined value of the oil wealth funds was around $206 billion a month ago.

Markets watch the data on the funds as one measure of the reserves Russia has to help it ride out the ongoing market and economic turmoil, which has put pressure on public finances and caused a sharp devaluation of the rouble. (Reporting by Toni Vorobyova)

Economics: Reserve Fund down 13.8% in April

http://www.businessneweurope.eu/dispatch_text8531

UralSib, Russia

May 5, 2009

Reserve Fund used to fund federal budget deficit. The Finance Ministry reported yesterday that on May 1, 2009 the Russian Government's Reserve Fund totaled RUB3,551.5 bln ($106.8 bln). This is 13.8% down from the level on 1 April (RUB4,117.7 bln or $121.1 bln). According to the Finance Ministry, the reason for this contraction in the Reserve Fund is special transfers made from the fund to the federal budget in order to balance government finances. This news provides clear evidence that the global financial crisis has started to take its toll on Russian state finances.

In two months one trillion rubles transferred from the fund to the budget.

In fact, over the past two months the government has transferred about 37% of the amount set aside in the Reserve Fund to support this year's federal budget.

In an explanatory note published yesterday the Finance Ministry said that in April the government moved RUB400 bln from the Reserve Fund to the budget.

This is in addition to the RUB600 bln redirected in March when these transfers were started. In total, RUB1 tln has already been taken out of the Reserve Fund and according to the revised version of 2009 federal budget the government plans to transfer a total of RUB2.7 tln this year.

Rise in CBR's own reserves offsets falls in sovereign funds. Another government fund - the National Prosperity Fund - also fell in April, but only marginally. On 1 May this fund totaled RUB2,869 bln ($86 bln) versus RUB2,915 bln ($85.7 bln) on 1 April. No money was transferred from this fund and the change is solely due to exchange rate fluctuations. Both government funds are part of Russia's international reserves, which also includes the CBR's own reserves. The latter have been continuously growing over the past few weeks which explains why Russia's gross reserves have barely changed: on 1 March 2009 gross reserves stood at $384 bln and on 24 April totaled $381 bln.

The Ministry of Finance to get another RUB400bn from Reserve Fund

http://www.businessneweurope.eu/dispatch_text8531

Rencap, Russia

Tuesday, May 5, 2009

According to the Ministry of Finance, as of 1 May the total volume of the Reserve Fund was RUB3,551.4bn ($106.8bn), a decline of RUB566.2bn compared to early April. The decrease was a result of the fund's money being used to finance the expected federal budget deficit.

As stated in the ministry's press-release, RUB400bn were used to cover the deficit and RUB91bn to compensate for the oil and gas transfer. YtD, RUB1trn was allocated to the accounts of the Ministry of Finance to balance the federal budget. Under the government order, in 1H09 up to RUB1.6trn can be used to balance the budget.

At the beginning of April, the budget deficit was RUB50.5bn; according to the Ministry of Finance, by mid-April, some RUB123.8bn of the Reserve Fund's money was spent. We estimate that at the end of May the deficit will amount to around RUB250bn. Consequently, the Ministry of Finance will place temporarily available funds, received from the Reserve Fund, on three-month deposits with commercial banks at around 15.0% in order to generate interest income.

Anton Nikitin


Domestic debt strategy

http://www.businessneweurope.eu/dispatch_text8531

Rencap, Russia

Tuesday, May 5, 2009

Bank of Russia continues to buy foreign currency

Yesterday (4 May), the most active trading in the Russian segment was seen on the FX market. On the back of rising commodity prices, investors mainly preferred to sell foreign currency to the Central Bank of Russia (CBR) which again was the main buyer. Daily turnover in the rouble-dollar segment with settlement tomorrow was $3bn, with the rouble rate stronger by 10 kopeks by the end of trading, closing at 37.80. We conservatively estimate that CBR purchases into FX reserves could be around $1.5bn. In our view, today, trading is most likely to be the same as yesterday, as market participants continue to reduce their foreign currency positions. The rouble/basket rate started the day at 37.75.

First tier is attractive to foreign investors

Yesterday turnover on the rouble bond market was modest due to many market participants enjoying the May holidays.

On the back of falling NDF rates (they have dropped about 200 bpts over the past two weeks) first-tier rouble bonds have become very attractive. In particular, Moscow bonds currently offer a premium over the NDF curve of 200-300 bpts and could be an interesting investment for foreign investors to consider. After the May holidays, we think the first-tier bond rally could continue, driven by foreign investors.

Nikolay Podguzov