October 6, 2016 / 1:32 PM / 10 months ago

Russian government approves higher 2016 deficit as oil unsettles budget plans

2 Min Read

MOSCOW, Oct 6 (Reuters) - The Russian government approved an amended 2016 budget on Thursday that envisages a larger deficit because oil prices have been weaker than officials had hoped.

Russia's 2016 budget was initially based on an average price of $50 per barrel for its Urals oil.

It has been amended to assume an oil price of $40, the average for Russia's main crude export blend Urals URL-E in the first nine months of this year, according to finance ministry data.

A proposed output cut announced last week by the Organization of the Petroleum Exporting Countries (OPEC) has helped to boost prices for benchmark Brent crude in recent days, although a global supply glut has been weighing on the market.

Sergei Donskoi, natural resources minister, told journalists the budget changes had been approved at a government meeting but did not elaborate.

Weak oil prices have added to pressure on Russia's public finances from Western sanctions over the Ukraine conflict.

The amended budget must still be approved by Russia's two houses of parliament and President Vladimir Putin before it becomes final.

According to the version approved on Thursday, the deficit this year will be 3.03 trillion roubles ($49 billion), or 3.7 percent of gross domestic product, up from earlier plans for a deficit of 3.0 percent of GDP.

State revenues this year are now seen around 369 billion roubles lower than previously planned, at 13.37 trillion roubles. Total spending is seen at 16.40 trillion roubles.

The finance ministry expects to use proceeds from the sale of government stakes in mid-sized oil producer Bashneft and top oil firm Rosneft to cover part of this year's deficit.

It will also use 2.1 trillion roubles from one of Russia's two sovereign funds, the Reserve Fund, and increased borrowing to cover the deficit.

Russia plans net domestic borrowing of 500 billion roubles this year, well above the 300 billion roubles pencilled into original budget plans.

$1 = 62.3700 roubles Reporting by Darya Korsunskaya and Elena Fabrichnaya; Writing by Lidia Kelly; Editing by Alexander Winning/Ruth Pitchford

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