Vedomosti, citing unnamed sources, suggests the government decided to bring only 90% of the approved 2015 spending limits to the ministries.
If confirmed, this decision might be the first step towards budget consolidation starting already next year.
As we suggested previously, given RUB REER sensitivity to the oil price of about 0.6x, each USD 10 decline in oil prices leads to about 0.5-0.6pp-of-GDP decline in the structural federal budget balance. Therefore, even not accounting for the likely large cyclical impact (on both the non-oil revenue and spending side), a USD 40 decline in oil prices might push the structural budget balance by 2.0-2.5ppt of GDP into the deficit area. Financing this deficit from the Reserve fund could only be sustained for a couple of years, making fiscal consolidation a not so distant prospect, while its composition (spending cuts or tax hikes) brings additional policy uncertainty for the economic agents.
It is very important in this regards that the government does not delay sending the right signal now to address the concerns of the business community over a potential additional increase in the tax burden. The final composition of the consolidation package, though, remains to be seen, and while there is arguably significant room to cut on inefficient spending, consolidation of such magnitude could be difficult to achieve without politically more challenging cutbacks on defence and security as well as a comprehensive overhaul of the pension system.