The federal surplus budget is a safety cushion and protection against external shocks. That's according to Leonid Grigoriev, Chief Advisor to Head of the Analytical Center, who has recently participated in the 25th Hour program on TVC.
Surplus budget is a safety cushion and protection against external shocks
"We still carry in us the 20-year-old trauma of the 1998 default. Countries that sanctions are imposed on usually end up going into an economic crisis leading to social tensions. In a situation of this sort, a surplus budget creates a safety cushion for the budget system," Mr. Grigoriev said.
The federal budget for 2019-2021 assumes a project oil price of 40 dollars a barrel while at the moment it is fluctuating around 60 dollars a barrel. Mr. Grigoriev believes that the government deliberately chose to err on the side of caution by basing their calculations on a lower price of oil. "The budget is to be calculated not in dollars but in rubles at the exchange rate and that means that the price of oil has to be multiplied by the dollar to ruble exchange rate. In order to get a balanced budget, the price of oil barrel must be about 4,000 rubles," Mr. Grigoriev explained.
He then went on to add that demand for oil is going by about 1 million barrels a year, and that in 2019, global oil production may reach 100 million barrels a day. "The fluctuations in the price of oil seen over the past few months have resulted from a variety of factors, including the sanctions on Iran that were initially announced as total," Mr. Grigoriev added. If everyone would have suddenly stopped doing any business with Iran, a shortage of oil would have occurred and its price would have gone up to 80 dollars a barrel, the expert believes. "Experts from across the Atlantic came to see me and asked me about our macroeconomic metrics and I told them that thanks to the sanctions we had half a trillion extra cash. That's because in this context, the price of a barrel of oil is nearing 5,000 rubles, " Mr. Grigoriev said.