Hit by oil price, Russia imposes 10 % cuts on government again

(Reuters) - Under pressure from the falling global oil price, Russia is requiring government departments to cut spending by 10 %, repeating a policy it also imposed in 2015, two government sources told Reuters.

The cutbacks will exclude several areas of government spending, including public obligations such as pensions, and pay for government employees.

Energy giant Russia is under pressure to find spending cuts as the international oil price has plunged towards $30 per barrel, a major problem for the federal budget that relies on oil and gas taxes for almost half its revenues.

Under the plan, which was approved at a meeting chaired by Prime Minister Dmitry Medvedev in December, government departments have until 15 January to submit proposals about where the cuts will fall, one of the sources said.

If they fail to do so the finance ministry will decide which items to cut.

The savings are expected to amount to roubles 700 billion ($9.16 billion).

Under the 2016 budget approved in October, federal budget expenditures were projected at 15.8 trillion this year, up from 15.5 trillion in 2015, with the federal budget deficit projected at 3 percent of GDP.

However, that plan was based on the Urals oil price averaging $50 per barrel in 2016, an assumption that President Vladimir Putin has since described as “unrealistic.”

A similar plan for government departments to cut their spending by 10 percent was also approved for 2015, but as with the latest plan large areas were excluded.

Government ministries eventually agreed to cut a trillion roubles from their expenditure plans in early 2015, but the introduction of new spending meant a revised budget approved in April cut overall spending only by roubles 298 billion.

Final expenditures for last year are now expected to be nearly roubles 15.5 trillion, similar to the original budget plan.