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Russia's state finances seen stable if oil stays at $50-55 per barrel: EBRD

By Jakub Iglewski

By Jakub Iglewski

WARSAW (Reuters) - Russia's state finances will stay in reasonably good shape if oil prices hold at current levels but Moscow needs structural reforms to improve economic growth, the chief economist at the European Bank for Reconstruction and Development (EBRD) said.

Oil, a crucial source of revenue for Russia, has bounced back above $50 and last month Russian manufacturing expanded at its fastest pace since 2011, a sign the economy is starting to grow again after more than two years of pain.

"Russia's finances are now in better shape. If oil prices stay at 50-55 dollars, the Russian government will do pretty well in the next few years. There won't be a risk of sovereign default with the current oil prices," the EBRD's Sergei Guriev told Reuters in an interview on Wednesday.

On Wednesday the price of Urals <URL=E>, Russia's chief export blend, oscillated around $53 a barrel. Russia's 2017 budget deficit is seen at 2 percent of national output, assuming oil prices remain at $50, the finance minister said last Saturday, down from 3.5 percent in 2016.

But Guriev cautioned: "If oil prices went down to $30 per barrel ... Russia's government would have to conduct another round of major austerity measures," he added.

Such a scenario is not impossible, given President Donald Trump's stance on promoting U.S. energy production and exports, Guriev added.

Russia's annual economic growth could average 1 to 1.5 percent "in a year or two", below the global average, but it needs to implement pro-market structural reforms to improve its performance, Guriev said, without elaborating.

The EBRD has previously forecast economic growth for Russia of 1.2 percent in 2017. Russia's economy minister told Reuters at the World Economic Forum in Davos last week that the economy could grow by 2 percent this year in the absence of external shocks.

SANCTIONS

Russia's economy shrank by up to 0.6 percent last year, according to preliminary figures, due to low oil prices and Western sanctions imposed in 2014 over the Ukraine crisis.

The bank has frozen its own investments in Russia. Moscow has said it will try again to overturn the ban on new lending at the bank's board meeting in May.

Guriev is himself a leading Russian economist who fled the country in 2013 after being subjected to interrogations and search warrants.

He said that a lifting of the sanctions would encourage investors to start returning to the resources-rich country, bringing positive effects onto the economy, but added: "There is a question of how sanctions would be removed."

Moscow refuses to hand back the Crimea region to Ukraine.

Guriev, who was speaking during a visit to Poland, also expressed concern about a rise in populism in Europe, saying it could lead to trade protectionism and a reversal of globalization and market reforms.

"These all have delivered great benefits to emerging markets, including our countries of operations," he said.

(Reporting by Jakub Iglewski; Writing by Lidia Kelly; Editing by Gareth Jones)

 

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