CEIC Data Blog

Russia’s Oil and Gas Revenues: Federal Budget Dilemma

 

CEIC Russia Data Talk: Russia’s vast resources of land and minerals have made the mining and quarrying industry the dominant sector of the Russian economy. As world oil and gas prices have risen, exports of oil and gas have become lucrative means of revenues for big oil companies and for the federal budget. Other industries have become less profitable and less attractive for development because they cannot quickly generate value and because they require long-term investment. Current economic growth is stimulated by oil and gas exports and development of the mining and quarrying industry. To further economic ambitions, however, will require development of other industries through investments in high-tech sectors of the economy and through the promotion of investment opportunities for private companies and foreign capital inflows.

Federal Government Budget
Russia Federal Budget
Chart provided by: CEIC Data

Federal government revenues reached RUB 8,303.8 billion in 2010, while expenditures jumped to RUB 10,115.6 billion. As a result, the federal government budget balance showed the deficit of RUB 1,811.8 billion in 2010. This was the second annual budget deficit in a row because of the global economic slump in 2008-2009, which resulted in the international decline of demand for oil and gas and a drop in export levels, which are critical for the Russian budget. Yet the deficit became less severe in 2010 and revenues advanced 13% compared to 2009. The pre-crises years of 2000 through 2008 brought stability and a relative level of prosperity to Russia with constantly rising world oil prices, surging exports of oil and gas, and consequently, the non-deficit budget throughout these years. The habit of large spending continued during the times of crisis and reached its maximum in 2010. Although federal government revenues were high, they still could not cover the level of expenditures, which exceeded revenues received even in 2008, the best year so far in terms of economic growth and government revenues.

Oil and gas revenues drive the Russian economy. The recent numbers show that oil and gas revenues, including mining and quarrying taxes as well as export customs duties on oil and gas, together constituted 46% of the federal government’s revenues in 2010. Such dependence is uneven from year to year and has varied between 37% and 47% in the last six years. In other words, almost half of the federal budget comes from oil and gas revenues, which reflects a critical condition of the Russian economy. In the short term, this might help the government to increase revenues as long as oil and gas prices are high and there is demand for Russian oil and gas in other importing countries. To keep the economy running well in the long run, however, the government will need to address the issue of total dependence on oil and gas and foster the conditions for the development of other industries.

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