By Gleb Bryanski and Darya Korsunskaya
MOSCOW (Reuters) – The Russian Finance Ministry announced a new measure on Thursday that it said was aimed at shielding the state budget from oil price fluctuations and Western sanctions targeting Russian energy exports.
Under the new initiative, set to be implemented next year, the government will lower the cut-off price for oil above which oil revenues go into the fiscal reserve fund to try to ensure that the fund is sufficiently replenished.
“To make our finances more resilient, we are proposing a reduction in dependence on various constraints, whether price-related or volume-related, in the budget’s reliance on oil and gas revenues,” Finance Minister Anton Siluanov said at a public forum.
RUSSIA’S OIL AND GAS SALES ARE EXPECTED TO FALL SHARPLY
The measure comes as Russia’s state oil and gas sales in September are set to fall by around 23% from a year earlier on lower prices and a stronger rouble, according to Reuters’ calculations.
The draft budget is expected to be submitted to parliament on September 29. Sources told Reuters that the government was considering raising the rate of value-added tax to keep the budget deficit in check and maintain reserves.
The Kremlin declined to comment on the VAT hike, with spokesman Dmitry Peskov saying that the government was handling the draft. Key budget figures are traditionally agreed with President Vladimir Putin before the budget is made public.
Putin, who met key cabinet members this week to discuss the budget, expressed displeasure at the slow pace of economic growth, which is expected to slow to about 1% from 4.3% last year.
MEASURE WILL STRENGTHEN RUSSIA’S BUDGET, SAYS SILUANOV
Siluanov has been seeking to restore the oil price mechanism, known as the “budget rule”, which was abandoned after the start of the war in Ukraine, although Russian media reported that he had pushed for a bigger reduction in the cut-off price.
Under the rule, the taxes resulting from when the price exceeds the agreed cut-off price go to the fiscal reserve fund, while the rest of the income is used to cover budget expenses. When the price falls below the cut-off level, the reserves are used to cover the resulting shortfall.
If the rule, first introduced by Siluanov’s predecessor Alexei Kudrin in 2004, is not in place, the budget can become more vulnerable when the oil price is going down.
Siluanov said the new measure would help to bring the share of energy revenues in the state budget down to 22% from about 25% in the first eight months of 2025, making the budget more “muscular”.
The fiscal reserves created under the budget rule carried Russia through several downturns and helped it withstand Western sanctions.
Siluanov said the cut-off price would be lowered by $1 every year to bring it to $55 per barrel in 2030. The cut-off price is currently at $60 per barrel.
The fiscal reserve fund, which can be used to cover the budget deficit, currently has about 4 trillion roubles ($48.25 billion) in it. The government this year plans to tap the fund for 447 billion roubles ($5.39 billion) to cover part of the budget deficit, which is expected to exceed 1.7% of GDP.
The 2026 draft budget set the average price of Urals crude at $59 per barrel, Siluanov said, implying that the fiscal reserves would not be replenished at the same cut-off price.
Speaking alongside central bank Governor Elvira Nabiullina, Siluanov paraphrased a quote attributed to Tsar Alexander III, that the army and the navy are Russia’s best allies, adding that sustainable finances were a third.
Nabiullina said a more balanced budget would enable the central bank to lower its key rate to an average of 12%–13% next year from the current 17%, a level economists and business leaders see as needed to spur faster growth.
($1 = 82.9000 roubles)
(Additional reporting by Oksana Kobzeva and Elena Fabrichnaya; Editing by Andrew Osborn and Gareth Jones)
