Oil report

UPDATE 1-Russia eyes up to $12 bln increase in state spending in 2021

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MOSCOW, Sept 3 (Reuters) - Russia’s finance ministry has proposed a softening of the fiscal rule to allow an increase in state spending of up to 875 billion roubles ($11.58 billion) next year to help recovery from the coronavirus crisis, a draft law published on Thursday showed.

The fiscal rule redirects oil revenues to the National Wealth Fund if crude prices are above $42.4 per barrel, a system which is designed to shield the economy from swings in prices for oil, Russia’s main export, and protect its reserves.

Russia is fighting a sharp economic contraction triggered by a rapid fall in crude prices and the coronavirus pandemic.

Higher budget spending will help Russia adapt to the new macroeconomic conditions, the finance ministry said in comments accompanying the budget amendments.

It said the proposed increase in state spending would in the medium term allow it to continue measures to support the economy and household incomes hit by the pandemic.

The amendments would also leave the door open for increased state borrowing in 2021.

Russia’s fiscal or budget rule has been praised by international rating agencies for its ability to shield the economy from external shocks.

The finance ministry had earlier said it would not scrap the rule even though oil prices had slid below the $42.4 per barrel level factored into the 2021 budget. Russia has instead raised state borrowing this year beyond budgeted limits in the response to the pandemic. ($1 = 75.5372 roubles) (Reporting by Darya Korsunskaya; Writing by Andrey Ostroukh; Editing by Catherine Evans)